What is Electronic Clearing System (ECS) ?

Electronic clearing system is a mode of electronic funds transfer from one bank account to another using the services of a clearing house. This is normally for bulk transfers from one account to many accounts or vice - versa. This can be used for making payments like distribution of divided, interest, salary, pension, etc. by institutions or for collection of amounts for purposes such as house tax, water tax, etc or for loan installments of financial institutions/banks or regular investments of persons.

There are two types of ECS called ECS (Credit) and ECS (Debit).

ECS (Credit) is used for affording credit to a large number of beneficiaries by raising a single debit to an amount, such as dividend, interest or salary payment.

ECS (Debit) is used for raising debits to a number of accounts of consumers/account holders for crediting a particular institution.

ECS payment can be initiated by an institution who have to make bulk or repetitive payments to a number of beneficiaries. They can initiate the transactions after registering themselves with an approved clearing house. ECS users have also to obtain the consent as also the account particulars of the beneficiary for participating the ECS clearings.

The ECS user's bank is called as the sponsor bank under the scheme and the ECS beneficiary account holder is called the destination account holder. The destination account holder's bank or beneficiaries bank is called the destination bank.

The beneficiaries of the regular or repetitive payments can also request the paying institution to make use of the ECS (Credit) mechanism for effecting payment.

The ECS users intending to effect payments have to submit the data in a specified format to one of the approved clearing houses. The list of the approved clearing houses or the list of centres where the ECS facility has been provided is available at www.rbi.org.in

The clearing house would debit the account of the ECS user through the account of the sponsor bank on the appointed day and credit the accounts of the receipts banks, for affording onwards credit to the accounts of the ultimate beneficiaries.

Advantages of ECS to the Banks:

• Banks handling ECS get freed of paper handling.
• Paper handling also creates lot of pressure on banks as they have to encode the instruments, present them in clearing, monitor their return and follow up with the concerned bank and customers.
• In ECS banks simply get the payment particulars relating to their customers. All they need to do is to match the account particulars like name, account number and credit the proceeds.
• Wherever the details do not match, they have to return it back, as per the procedure.