Electronic clearing system (ECS) is no longer a jargon in the lexicon of banking customers. Over the years, it has evolved and provides various facilities to ease up your transaction drill. We give a user’s guide to ECS, what you can do with it and what you need to be careful about when using this service.
Simply put, ECS is a service with which you can transfer funds from one bank account to another electronically. Says Puneet Kapoor, executive vice-president, Kotak Mahindra Bank Ltd, “ECS is a convenient mode to receive or make periodic transactions electronically. It is also a cost-effective solution to the bank.” Broadly, there are two types of ECS transactions—credit and debit.
By Shyamal Banerjee//Mint
This is what comes to your savings account through ECS. So bulk payments made by companies or institutions come under this. For example, your salary is credited to your salary account on a particular date every month through ECS or a mutual fund credits dividends or redemption amount in your savings account through this mode.
Through this you make recurring payments to an institution. For instance, when servicing a loan or when investing through a systematic investment plan in a mutual fund or for paying insurance premiums. This way you escape the risk of missing a deadline and frantic last-minute cheque issuances are ruled out.
The funds are transferred from your bank account to the lender’s account on a fixed date every month for the duration of the loan or the tenor of investment you have specified.
Amount: While for loans or investments, there is a fixed ECS sum, for utility and credit card bills, you can set an upper limit and the actual debit amount can vary according to the bill. Says A. Meenakshi, head (operations), ING Vysya Bank Ltd, “You can also set it up to a maximum limit. That’s not all, you can fix it for as long as you want it running.”
In fact for credit card bill payment, you can choose among options. For instance, as per State Bank of India Card website, “You can set an ECS payment options of three types on credit cards, First is the total amount due. Second, is the minimum amount due and third, is the fixed amount of your choice (subject to that this amount covers the minimum amount due).”
If your bill overshoots the limit, few banks may inform the customers. Says Kapoor, “In case a submission overshoots the upper limit, on a best-effort basis, we do refer back to our customers for confirmation before returning the ECS.” Banks may or may not get back to you on overshoots. If they don’t, your ECS will be dishonoured and bounce.
Activation and withdrawal: First of all, the utility company to which you need to make the payments should have opted for the ECS debit scheme with your bank.
Fill up the ECS form available with the utility company and get it endorsed by your bank. Make sure you choose a date on which you want the amount debited every month. Meenakshi says, “In the past customers had to bring this ECS form from the bank to get registered but these days, the companies themselves get it registered with the bank. Once the bank does the needful, the ECS mandate is set.”
To withdraw or stop an ECS, you will have to notify your bank in writing in advance.
Banks may charge a nominal fee of around Rs50 for registration of ECS mandate.
Watch out for
Bounced ECS: As per the Reserve Bank of India’s website “Any mandate in ECS Debit is on par with a cheque issued by a customer.” Since ECS is similar to a cheque, you should ensure that you maintain adequate funds in your account from which you have issued an ECS or be prepared to pay a penalty.
Says Kapoor, “The treatment of ECS return is similar to that of a cheque. Therefore, if the bounce is due to a financial reason, there is a charge. But it is due to a technical reason, there is no charge.” Though this penalty will vary from bank to bank, it is usually in the range of Rs75 to as much as Rs500.
Bill discrepancies: Check your monthly bank statement to ensure there is no discrepancy between the actual bill and the amount debited.
Says Ranjit Dani, Nagpur-based certified financial planner, “As far as investment goes, ECS encourages financial discipline. As far as paying bills goes, ECS is good, provided you monitor your bank’s monthly statements to ensure that there is no discrepancy.”
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