Ever since the dawn of the internet era, most financial services have shifted online. Be it Availing a Personal Loan, paying Equated Monthly Instalments (EMIs), transferring money to someone, or simply paying an electricity bill, the internet has become the facilitator of all recurring transactions. The facility which has made this possible is the all-pervading electronic clearing system (ECS).
What is the Electronic Clearing System (ECS)?
Initiated by the Reserve Bank of India (RBI), ECS is essentially an electronic mode of transferring funds from one bank account to another. It can be used by both, institutions and individuals, to make periodic transactions automatically.
For example, a company can use ECS to pay the monthly salary of its employees without having to write cheques for everyone. Similarly, an individual can pay their telephone bill by using this service, avoiding the hassle of visiting the office of the service provider altogether.
Types of ECS
The ECS is basically of two types:
1. ECS Credit
This is when an institution/individual deposits a certain amount into your bank account. For example, after having determined your Personal Loan Eligibility, when the bank credits the loan amount to your account, they do so through the system of ECS credit. Similarly, the salary you receive from your organisation is also credited via this system.
2. ECS Debit
This system is pressed into service when you make recurring payments to an institution/individual. For example, your Personal Loan EMI is debited from your account through ECS debit. Even the SIP payments against your mutual funds are done via the same system.
4 Things to Know About Electronic Clearing System
Despite using the ECS every day, we remain unaware of a number of features of ECS. The four basic aspects of the Electronic Clearing System which you should know about are:
1. How to avail ECS?
In order to avail of the ECS facility, the first thing you need to do is inform your bank. Upon notifying them, they will provide you with a form which you have to fill out. In this form, you will authorise a certain institution/individual to debit or credit the payments through your account on a periodic basis. This authorisation is called a mandate. Once this mandate is received by the bank, your ECS subscription starts.
2. Can you set an ECS limit?
You have the option to fix the amount of money which can be debited or credited from your account through ECS. In addition to that, you can even specify the purpose for debit and set a validity period within which the ECS will operate.
For example, if the EMI which goes towards fulfilling your Personal Loan payment is Rs. 8,000, you can set a debit limit of Rs.8,000 every month. Beyond this limit, the ECS will cease to function.
3. Are there any processing charges or fees?
In the earlier days, the beneficiary account holders had to pay a nominal fee in order to avail ECS. However, the RBI has now directed the banks to provide ECS services free of charge. In other words, the Electronic Clearing System costs you nothing.
4. How can ECS be discontinued?
In order to discontinue the ECS service, you need to follow a two-step procedure. First, you need to inform the institution/individual of the person who is debiting/crediting the money through your account and inform them via the written medium of communication. Once this is done, you need to inform your bank, in writing, about your intention to discontinue. Following this, within 10 days, you will be unsubscribed from ECS.
Words of Caution
- An ECS mandate is nothing short of a cheque issued by you, therefore, you must take it very seriously. In case your account does not have sufficient funds and the ECS bounces, it will be considered equivalent to a bounced cheque. This will make you liable to pay a fine, which could be as high as Rs.1,000.
- It is important to monitor your account statement frequently and match the amount you sanctioned with the actual amount which has been credited/debited. This will help you spot inconsistencies, if any, and avoid any inconvenience.
ECS can be your safety net if you want to avoid the struggles associated with making or receiving repetitive payments. For instance, you can easily pay your Personal Loan EMIs for the entire loan tenure without having to visit the bank every month.
You can use MyMoneyMantra’sOnline EMI Calculator to know how much EMI you need to shell out each month so that you can repay your loan conveniently through ECS.
The greatest benefit of the Electronic Clearing System is the ease of functioning it brings to your recurrent financial obligations.
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