The Indian payment industry enters the next level with National Automated Clearing House (NACH). Started by the National Payments Corporation of India (NPCI), NACH aims to create a better option for facilitating clearing services than the existing Electronic Clearing Service (ECS) system.
NACH is a centralised, web-based clearing service that can ease the work of banks, financial institutions, the government and corporates by consolidating all regional ECS systems into one national payment system, thereby removing any geographical barriers in efficient banking.
The service is now active in all Indian banks with core banking facility. It comes in two variants – ECS Credit and ECS Debit. The significant benefits to bank customers include automatic debits from their account for bill payments (telephone, electricity, etc), loan instalments, insurance premiums and more.
Not only this, NACH is useful for corporate and financial institutions that make payments in bulk like dividends distributions, salaries, interests, pensions, etc.
There are four types of electronic clearing services:
• Local ECS
• Regional ECS
• National ECS
While the Local ECS, Regional ECS, National ECS are controlled by the Reserve Bank of India or by the designated commercial banks, NACH functions on all India platforms managed by the National Payments Corporation of India (NPCI).
NACH provides a variety of facilities that include standardising and digitising the mandates, simplifying them, reduction of the activation time and reducing the cost of operation. The process of activation of ECS mandates had a longer turnaround time (30 days) than what it is expected to be in NACH (10 days). Also, the Aadhar-based benefit transfers have been simplified.
For customers, this means payments of premiums, bills and loan installments etc. on time every month or specified time period. Banks, on the other
hand, save time and minimise their dependencies on cheques or other such paper-based transactions.
Large organisations strand to gain as they can provide better customer service by disbursal of bill clearances, salaries and pensions on time without having to undergo numerous steps. Also, organisations can take advantage of automatic crediting of allowance benefits or scholarships etc. For them, also, the paper-based transactions are reduced, thus facilitating their other work.
NACH is a one-time registration process, like ECS, that provides flexibility to investors who can make a single payment for any lump-sum investment or through Systematic Investment Plan (SIP). However, the time taken for the registration process is said to have been reduced in NACH.
The registration process itself has not changed; the only thing you need to do is collect the NACH form instead of the older ECS form.
Effect on SIPs
Keeping in view the circular issued by NCPI, it is better to use NACH forms for transactions as banks may soon stop accepting ECS forms altogether. You can get the NACH form from AMC (Asset Management Company) offices or their websites.
The existing ECS mandates will continue till their validity expires. Once the tenure for the SIP is over, the NACH form has to be filled for the same in order to renew it.
New registration for SIP does not require many steps; investors only need to submit the ‘One Time Mandate & SIP’ form. The latest copy of the form is available on the website.
The turnaround time (TAT) remains unchanged temporarily; which means the registration of SIPs will be done within one month (30 days) from the date of submission of the application. A reduction in turnaround time to 10 days is expected in the future for transactions via NACH.
The writer is CEO, BankBazaar.com