Electronic Clearance Service (ECS): Meaning, What is ECS, Benefits

When you take a loan like a home loan or personal loan, you are required to pay its EMI on a fixed date every month. We are generally so busy with our personal and professional lives that it can be challenging to remember the EMI date. Missing EMI date could result in a penalty, and regular late payments can also affect your credit rating.To eliminate this inconvenience, lenders in India now offer Electronic Clearing Service (ECS) facility to the borrowers. Let us have a look at what this facility is and how it works.

ECS was launched by the RBI for facilitating bulk transfer of funds from one bank account to another bank account. Loan providers use this facility to debit loan EMIs on a fixed date from the bank account of the borrower.This is done with the help of a clearinghouse. In India, ECS debit is mostly handled by the NACH (National Automated Clearing House) which works under NPCI (National Payments Corporation of India).

There are mainly two types of ECS, which are ECS credit and ECS debit. Read further to know what they are and how they are different from one another.

ECS credit:

When a bank makes credit to a bank account, like to pay salary, dividends, etc. it is called ECS credit. A single account is debited on regular intervals to credit multiple accounts.

ECS debit:

When aa single account is used to make payments like EMI, loans, premium, mutual funds, etc.Based on the geographical location of branches, ECS schemes are classified into 3 categories:

1. Local ECS – It is operated at 81 centers across India by the RBI.
2. Regional ECS – It is operated at 9 centers across the country by the RBI.
3. National ECS – It is a centralised version of ECS Credit being operated in Mumbai.

When you take a loan, you are required to sign an ECS payment mandate. This mandate gives the authority to the clearinghouse to debit the monthly EMI from your bank account and credit the same into your loan account, or lenders account on a fixed date.This mandate will have detailed information about your bank account, bank branch, ECS debit date and amount.

In order to avail ECS scheme, you need to inform your bank and submit the mandate to authorise the institution to debit or credit through the bank. The mandate holds the details of your branch of the bank and account. You will receive updates about any debit or credit transactions that happen through your account on your registered mobile number.

The RBI has deregulated the charges to be levied by sponsor banks from institutions. The destination bank branches are directed to afford ECS credit free of charge to the beneficiary account holders.

1. Increases customer satisfaction2. No late payment fees3. Makes prompt payments of bills4. Enables customers to make timely payment of insurance premiums, credit card payments, mobile and telephone bills, mutual funds, loan instalments, etc.5. Reduces the use of papers

If for some reason you want to stop ECS debit from your bank account, you need to inform the same first to your loan provider. A written application needs to be submitted in a format prescribed by the loan provider. Once this is done, you also need to inform the same to your bank by submitting a written application.Submit the application to the loan provider as well as your bank at least a couple weeks before your EMI debit date so that the necessary steps can be taken in time.

While the ECS facility eliminates the need for you to issue a cheque or go to an online payment gateway for regular payments like loan EMIs, you should make sure that your bank account has adequate funds for clearing the ECS.If at all you do not have adequate funds in your bank account and the ECS bounces, you will mostly be required to pay a penalty which can be as high as the penalty you pay for a bounced cheque. So, be a little cautious while using this facility for automating your EMI payments.