Meaning of Electronic Clearance System (ECS)

By | March 21, 2018
(Last Updated On: March 21, 2018)

PAYMENT BY USE OF ELECTRONIC CLEARING SYSTEM (ECS) THROUGH A BANK ACCOUNT

It is an electronic mode of fund transfer from one bank account to another using the service of clearing house.

The meaning of ECS is explained in FAQs issued by the RBI (updated on 21.10.2015) as under:

“ECS is an electronic mode of payment/receipt for transactions that are repetitive and periodic in nature. ECS is used by institutions for making bulk payment of amounts towards distribution of dividend, interest, salary, pension, etc., or for bulk collection of amounts towards telephone/electricity/water dues, cess/tax collections, loan instalment repayments, periodic investments in mutual funds, insurance premium etc. Essentially, ECS facilitates bulk transfer of monies from one bank account to many bank accounts or vice versa. ECS includes transactions processed under National Automated Clearing House (NACH) operated by National Payments Corporation of India (NPCI).

India Post, Ministry of Communications explains the ECS scheme as under:

(https://www.indiapost.gov.in/Financial/Pages/Content/ECS.aspx)

“The Electronic Clearance Service (ECS) scheme provides an alternative method of effecting bulk payment transactions like periodic (monthly/quarterly/half-yearly/yearly) payments of interest/salary/pension/commission/dividend/refund by Banks/Companies/Corporations/Government Departments. The transactions under this scheme move from a single User source (i.e. Banks/Companies/Corporations/Government Departments) to a large number of Destination Account Holders (Customers/Investors). This scheme obviates the need for issuing and handling paper instruments and thereby facilitates improved customer service by the Banks and Companies/Corporations/Government Departments effecting bulk payments.”

Government of India in their website http://cashlessindia.gov.in explains ECS as under:

“ECS is an alternative method for effecting payment transactions in respect of the utility-bill-payments such as telephone bills, electricity bills, insurance premia, card payments and loan repayments, etc., which would obviate the need for issuing and handling paper instruments and thereby facilitate improved customer service by banks/companies/corporations/government departments, etc., collecting/receiving the payments.”

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