What is an ECS?

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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What is an ECS?

Types of ECS:

There are two types of ECS. One is called ECS Credit while the other is called ECS Debit.

• ECS Credit: this service is used for affording credit to large number of beneficiaries by raising a single debit to an account like dividend, interest or salary payment.
• ECS Debit: this service is used to raise debit to a number of accounts of consumers or account holders for crediting a particular institution.

ECS scheme:

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.

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ECS credit clearing:

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.

How does the system work?

The way in which the credit system works is described below:

• The institution or the user that has to make payments to a large number of customers or investors would prepare the payment data on a magnetic media and submit the same to its Sponsor Bank.
• The Sponsor Bank would present the payment data to the local Bankers’ Clearing House that is managed by Reserve Bank of India authorising the Manager of the Clearing House to debit the Sponsor Bank’s account and credit the accounts of the banks where the beneficiaries of the transactions maintain their accounts.
• On receiving this authorisation, the Clearing House will process the data and work out an inter-bank funds settlement.
• The Clearing House will furnish to the service branches of the destination banks, credit reports indicating the beneficiary details like the names of the branches where the accounts are maintained, the names of the beneficiaries, account type, account numbers and the respective amounts.
• The service branches will in turn pass on the advices to the concerned branches of their bank, which will credit the beneficiaries’ accounts on the appointed date.

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ECS Charges:

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 1^st 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.

ECS Clearing Time:

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:

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

Wednesday

• The Clearing House verifies the debit data and sorts it to generate reports to be sent to your bank for processing your payment instruction

Thursday

• The Clearing House sends these reports to the coordinating branch of your bank. 

Friday

• The coordinating branch sends these reports to your branch, i.e. the branch where your account is held.

Next Monday (date your account gets debited)

• Your branch debits your account, provided the account has sufficient funds.
• The Clearing House debits the account of your bank and credits the main bank account.
• Your and other customers' banks prepare a report of successful and unsuccessful debits and send it to their respective main branches.
• The main branches of all the banks compile the reports and forward the aggregate reports of successful and unsuccessful debits to the Clearing House.

Next Tuesday

• Those banks that have not forwarded the aggregate report on Friday will forward their reports by this day; else the Clearing House assumes that all the debits are successful.

Next Wednesday

• The Clearing House reverses the credit given to main bank account to the extent of failed debits.

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