NACH MANDATE
The current Govt. has the dream of making digital India. Cashless transactions is one of the significant factors to be fulfilled for making India digital. For this, a smooth flow of digital transactions is needed. But there was a loophole in the ongoing system. So to make the flow of transactions smooth and fast, the current system ECS was updated to NACH.
In the Indian banking system, there was an automated system, i.e. ECS (Electronic Clearing Service) which facilitates the debit and credit of payments and receipts. In 2016, ECS was replaced by the newly developed "Nach Mandate".
NACH stands for National Automated Clearing House. It provides the fast and automatic transfer of money within banks and its branches across the country. The transactions are executed on the same day on which they are made. NACH is introduced by NPCI over ECS. NACH is basically used to perform electronic transfers, large amount transactions and recurring periodic transactions. It is used to pay dividends, salaries, subsidies, pension, telephone bills, Electricity bills, loans’ EMI, policy premiums etc. It is suitable for large Financial Institutions, Banks, Govt. and Corporates who make payments in large amounts. Currently, above 82000 institutions are linked with NACH according to stats.
NACH Mandate Management System:
It is a service provided by NACH Debit for managing debit mandates of clients. It facilitates Manage, Amends and Cancellation of mandates.
NACH Registration:
Registration under NACH is a quick process. Following are the steps:
The first step in NACH registration is filling the OTM form.
Then the form is submitted online for registration and verification.
After that, the form is sent to the customer’s bank by the NACH for further processing.
The bank will send a notification to the customer for confirming registration.
The confirmation gives the authority to the institution to auto-debit the amount from the customer's account.
The whole process takes 10-15 days.
While registering for NACH, various details are needed to be given by customers like bank name, account number, branch name, contact details and the daily debit limit from the account.
There are two types of NACH:
1. NACH Debit: This facilitates the automated collection of bills, SIPs payments, insurance premium payments etc. from the holder's account in the account of NBFCs, Banks, Govt.
2.NACH Credit: It is mainly used to pay salaries, commissions, interest etc. to the banks, financial institutions, Govt. etc.
Objectives of NACH:
It focuses on facilitating electronic transactions by covering all banks across the country.
It aims at bringing down the cost of transactions.
Reducing the time taken in the execution of transactions.
Reducing the burden of people as it makes automatic deduction of payments on a specified day.
Avoiding delay of payments as the account is auto-debited on a specified date.
Advantages of NACH:
Below can be seen the various advantages of NACH:
It makes the transactions efficient as it takes very minimal cost in making transactions.
As the execution is done online, it reduces a lot of paperwork.
It helps in faster debit and credit of money.
The auto-debit function allows the individual to make payments of various bills on time.
It’s linking with Aadhar facilitates direct transfer of pension and subsidies in the account.
How NACH is better than ECS:
NACH facilitates execution of transactions the same day while it takes three to four days in ECS.
There is less paper working involved in NACH as compared to ECS.
Rejection of transaction chances in NACH are less as compared to ECS as the most functions are automated.
Maximum limit of transaction in NACH is ₹10lac as compared to ECS, i.e. ₹1lac.
There is a Mandate Registration Reference Number provided in NACH which can be used for future transactions, but no such number is provided in ECS.
There is an online dispute settlement system provided by NACH to resolve disputes which is not in the case of ECS.
NACH is available across the country while ECS is still available at limited areas only.
People who are currently registered under ECS need not change their registration. They can register under NACH after expiring of their ECS mandate. New customers are required to register under NACH only.
Loan Repayment through NACH:
After raising money from banks or other financial institutions, an individual needs to pay back that money in equal instalments, i.e. EMIs periodically. So if the payment is needed to be made on a monthly basis, the individual needs to transfer the amount in the lender's account. There are chances that the customer forgets to transfer the money on the due date or ignores the notification of reminder. A new system is developed, which is NACH Mandate; it provides the ease in repaying the loan by automatically debiting the amount from the customer’s account in the lender’s account. For getting the auto-debit alternate, the customer needs to fill NACH mandate form. It gives the right to banks to deduct the amount from a customer's account.
Processing of NACH for SIP:
For investors investing in mutual funds, they need to use NACH. Now mutual funds are registered using NACH mandate only.
NACH provides an investor to register for systematic investment plans in mutual funds. After registering under it, a fixed amount is debited from the investor's account periodically. Every folio needed a different mandate. One mandate is applicable only for one folio. There can be multiple mandates generated on NACH.
Earlier with ECS, it used to take around 30 days for investors in the processing of registration. Now, after the introduction of NACH, it only takes 15 days to register.
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