Everything you need to know more about the NACH Mandate

In an attempt to establish a framework amongst every bank in India for quicker (and more efficient) electronic payment request processing, the National Automated Clearing House (NACH) mandate was introduced in 2007. Recognizing the increase in credit card applications, the government of India wanted to encourage more credit flow, thus also paving the way to the NACH mandate inauguration. Their dual goals include assisting financial institutions and corporate houses in processing payments of high volumes and eliminating the geographical barrier across the country by processing all kinds of payments stemming from different banking sectors across the nation. It is a convenient initiative that has aided the government in settling financial disputes and inversions while concurrently monitoring account information (and mapping this information by pinning an Aadhar card number to a unique institution identification number for governance purposes). We elucidate this mandate below.

What is ECS?

The Electronic Clearing Service (ECS) refers to the service that was running prior to the establishment of the NACH mandate. Before the mere submission of the NACH form online, the ECS mandate process required individuals to fill in the ECS form manually and submit the physical form after entering the pertinent details. The differences between these two mandates lie in their processes and goals.

• The ECS registration process requires manual effort and can last up to 30 days. The NACH registration process, on the other hand, is completed quicker digitally and takes only up to 15 days.
• The payment process settlement takes up to four days under the ECS mandate, whereas it takes a maximum of one day under the NACH mandate.
• With better monitoring and tracking of information, NACH is preferred when it comes to disputed settlements. Every process is given a unique mandate registration reference number (after filling out of the NACH form) that can be referred to even in the future, unlike that of the ECS process where no such reference number is extended.

NACH Mandate Types

Transactions from an individual’s account to a financial institution under the NACH mandate are of two types, namely, NACH credit and NACH debit.

NACH Debit: A single settlement is used to track large payment submissions from several individuals. EMIs are collected from a customer’s bank account after their respective submissions in the case of a loan. The benefits of the NACH debit system are multifold. In addition to the higher degree of security that accompanies the collection of such payments, recurring payments are also paid automatically on time, thereby preventing the customer from forgetting to make their bill payments on time.

NACH Credit: Similar to NACH debit, an electronic payment service collection that works for the collection of bulk payments from organisations and companies fall under the NACH credit umbrella. A large number of payments can be sent to a large number of personal bank accounts so that the pertinent beneficiaries receive their payments on time. Pensions, salaries, dividends and subsidies are some of the payments made by corporations using the NACH credit mandate to multiple receivers in one go. NACH credit is a financial milestone in India’s digital history and is heavily dependent on, as observed in the execution of 10 million transactions daily. One settlement request can account for multiple files getting processed with the aid of NACH. This system can be relied upon heavily because of its stringent security features and can be operated every day, excluding when RTGS does not operate and Sundays of each week.

Conclusion

We have presented you with a comprehensive guide on the NACH mandate. We began by expanding on the NACH full form and followed it up by explaining the history behind it. From a historical perspective, the NACH mandate was predated by the ECS mandate. The progress in time paved the way to more individuals growing wary of the security and tracking measures in place for the ECS mandate, thus eventually leading to the establishment of the NACH mandate. We shed some light on what this mandate is, the differing aspects of it in comparison to the ECS mandate and the types of NACH mandates.