The growth in the number of industries, companies etc. has led to the growth of financial transactions between the commercial organisations, banks, government, individuals etc. and there are certain transactions or payments which are recurring that is, it keeps repeating periodically, it may be monthly, quarterly, half yearly, yearly and so on. For instance payments like utility bills (electricity bills, water bills, telephone bills, piped gas bill, post-paid mobile bills, etc.), salaries, credit-card payment, loan repayment, fees, donations, subscriptions, insurance premiums, etc. are repetitive in nature. It becomes very difficult to track and manage such bulk transactions manually.
NACH is a service offered by the National Payments Corporation of India, to facilitate and manage such payments which are recurring in nature. National Payments Corporation of India or NPCI is a body constituted by the Reserve Bank of India along with the Indian Banks Association and ten promoter banks namely State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank, and HSBC. Its aim is to facilitate the payment and settlement system in the country and it is also focused on using innovative technology for efficiency in the payment system.
Prior to NACH, Cheques and ECS were used to make such payment or to transfer money from one bank to another. When the cheque is deposited in a bank, the cheque is then delivered to the bank/branch where it is drawn. The cheque is passed for payment if the funds are available in the account and the banker is satisfied about the genuineness of the instrument. The cheques that are unpaid are returned to the presenting bank through another clearing called return clearing. The realisation of the funds occurs after the completion of return clearing and by the absence of an unpaid cheque . Thus there was a fear of cheque bouncing and non-payment. Other methods for transfer of payment were RTGS or NEFT these are also not that effective for recurring payments, as there is a need for frequent follow ups.
ECS or Electronic Clearing System was also introduced by the Reserve Bank of India to make transactions which are recurring or repetitive in nature. Based on the location of branches there were three categories of ECS- local, regional and national ECS. There are two variants of ECS that is, ECS credit and ECS debit. These methods were considered to be time consuming and required a lot of capital. Therefore, NACH is considered to be a form of ECS initiated by the NPCI to consolidate multiple ECS system running across the country and make the payments faster by removing the local barriers.
NACH when elaborated stands for National Automated Clearing House. According to the National Payment Corporation of India,
“NACH is a web based solution to facilitate interbank, high volume, electronic transactions which are repetitive and periodic in nature and it can be used for making bulk transactions”.
It simply means that the NACH process simplifies and transfers such bulk high volume payments which recurring or periodic in nature from bank to bank. It is considered to be very useful for corporations, industries, manufacturers, banks, governments which deal with bulk transaction. As it is designed in such a way that the process of collection of large volume payments becomes easy and convenient. This process usually takes around 05-10 days.
The common example given here is that of a manufacturer, the manufacturer manufactures the product and has to supply these products to a large number for distributers periodically. When the time comes for collection of such payments it becomes very difficult to keep track and manage the payments. With NACH the collection of payments becomes very easy. Where the manufacturer is required to send a mandate form to the distributers which the distributers have to fill and select debit and send the form bank to the manufacturer. This mandate form acts as a permission to debit the account for making payments. Further this is processed by the manufacturer’s bank for registration with distributers’ bank through NPCI. After registration the manufacturer can initiate the debit transaction from the account of distributers at an agreed interval for payment collections.
Thus there are four entities involved in the NACH process – the corporate, the bank with which the corporate is banking (sponsor bank), NPCI and the bank where the customer hold an account which is to debit (destination bank)
The Indian banking system has been evolving from the era of indigenous bankers to the modern era of digital and net banking. Thus, with digitalization there are various banking services available at our finger tips, e-NACH is one such internet based service. It stands for Electronic National Automated Clearing House. E-NACH is a same day debit realisation process where the fund transfers are automated electronically, using net-banking or debit card, according to the instructions provided while filling the e-NACH form. At present, only transactions below ₹ 1 lakh can be made through the e-NACH method.
The process is considered to be simpler than filling the NACH form manually, here the customer has to fill and submit the e-NACH form on the merchant website. In the e-NACH form the customer has to provide details like name, bank account details such as account number, bank name…, the date scheduled for debiting the account, amount to be debited etc. Care must be taken to fill in proper and correct details as the registration may be rejected for improper or incorrect details. For example the date set as 18/09/1889.
After submitting the details, the customer is re-directed to the page where the customer has to enter his debit card details or net-banking login page where the customer has log in using the credentials- customer ID and password, so it is necessary to avail the net banking service from your bank.
After logging into the net banking account, the customer has to view and verify the e-NACH details and has to confirm the registration by clicking on the confirm button. In case of debit card, the one-time password is requested to be entered for authentication.
After updating the necessary details, the status of the request will appear. Also, a SMS will be sent to the customer regarding the successful registration. With this the e-NACH registration process is completed and the payment is auto-debited from the customer’s account on the scheduled date.
If there is a dishonour of electronic fund transfer instruction for insufficiency of funds in the bank account to be debited, then the remedy available is same as that of dishonour of cheques under section 138 of the Negotiable Instruments Act, 1881.
Thus,E-NACH is considered to be a hustle free improvised NACH process. It is almost similar to the method of providing standing instructions on your recurring card payments. The corporations or customers need not remember the due date for paying off their bills, fees etc. It can be used for both push and pull transactions that is, payments and collections/receipts.