Academy Last Update - 2023-06-09
National Automated Clearing House (NACH)
ABOUT:- The Reserve Bank of India offers the Electronic Clearing System (ECS) for faster payments and collections. ECS is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature. By repetitive and periodic, it is meant that the transactions occur repetitively and after a fixed time interval, But ECS lacks certain things like it takes around 30 days for its activation after submitting the required documents, it is regional based, etc.
To overcome the problems faced by ECS, National Payments Corporation of India (NPCI) came with another system called National Automated Clearing House (NACH). NACH is a centralised system, launched with an aim to consolidate multiple ECS systems running across the country and provides a framework for the harmonization of standard & practices and removes local barriers/inhibitors. It intends to provide a single set of rules (operating and business), open standards and best industry practices for electronic transactions which are common across all the Participants, Service Providers and Users etc.
Like ECS, NACH also is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature. NACH system is used by institutions for making bulk payment of amounts or for bulk collection of amounts.
Like ECS, NACH has both Debit and Credit variants:-
Some facts about NACH:
Some of the benefits of NACH scheme:
NPCI has categorised members of NACH system in three entities:
The corporate/government departments, on submission of necessary agreement with their Sponsor Banks, participate on NACH system as Users. For this, to facilitate settlement on their behalf, the departments indicate the names of the Sponsor Banks with whom accounts are maintained.
NPCI notifies all of the members if a new member is added to the NACH network or if suspension or termination of a NACH member occurs.
How NACH is different from its predecessor ECS ?