The ECS is an electronic clearing system that facilitates paperless credit or debit transactions directly linked to the customer’s account. This system provides for a faster mode of payment and fund transfer from one account to the other, using the services of a clearing house. This service is generally used for bulk transfers from one account to the other. It can be used by institutions for making payments such as distribution of dividend, interest, salary and pension. It can also be used to pay bills and other charges like telephone, electricity, water or for making equated monthly instalment payments on loans or installments for regular investments.
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There are two types of ECS. One is called ECS Credit while the other is called ECS Debit.
The user needs to inform the bank and provide a mandate that the authorized institution uses to debit or credit the payments through the bank. The mandate contains the details of the bank branch and account particulars of the individual. It is the responsibility of the institution to communicate the details of the amount of money credited or debited from the account of the customer. The details will contain the date of credit or debit, the amount and other particulars related to the payment. The customer receives the information through mobile alerts on the mobile number that is registered with the bank. The user of this system can mention details like setting the maximum amount that can be debited, specify the purpose of the debit and set a validity period.
The Electronic Fund Transfer system or the ECS scheme is an offline electronic fund transfer system operated by the Reserve Bank of India that facilitates paperless debit transactions between accounts. This is a method of payment where the institutions make a large number of payments like interest or dividends. The institution can directly credit the amount electronically into the bank accounts of the share-holders, depositors and investors without having to issue paper instruments.
The way in which the credit system works is described below:
The ECS Credit system can be used to pay interest, dividends, to name a few. It is a mode by which funds are automatically debited to your account each month to pay a certain bill or fee. It helps to pay your regular bills. The Reserve Bank of India has deregulated the service charges that is levied by the sponsor banks. The sponsor banks are, however, required to disclose the charges in a transparent manner. With effect from 1st July 2011, originating banks are required to pay a nominal charge of 25 paise and 50 paise per transaction to the Clearing house and destination bank respectively.
The ECS Debit Clearing process takes 7 working days. Currently there are two ECS cycles during the week, beginning on Tuesdays and Fridays. The day-to-day process is discussed below assuming that the first day is a Tuesday:
Your payment instructions are aggregated and forwarded to the main Bank. The bank encrypts the data and sends it to the local Bankers Clearing House
Next Monday (date your account gets debited)
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