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Showing posts with label ecs. Show all posts
Showing posts with label ecs. Show all posts

Wednesday, September 21, 2011

Dishonor of electronic funds transfer for insufficiency of funds in the bank account – clarification





Today Reserve Bank of India, DPSS has issued a clarification on Dishonour of electronic funds transfer for insufficiency of funds in the bank account.
The Press Release can be accessed @ RBI Press Release

The clarification was necessary, as the general market opinion was that on ‘Dishonour of electronic funds transfer for insufficiency of funds in the bank account’, equal protection as under penalties stipulated for dishonor of cheques under the Negotiable Instruments Act, 1881, were not available

Through this clarification, RBI has informed that electronic funds transfer are on par with the penalties stipulated for dishonor of cheques under the Negotiable Instruments Act, 1881.

This clarification should now encourage migration of Loan Payments from the paper-mode to electronic mode.  

It is to be noted, in case of electronic funds transfer i.e Electronic Clearing Services-Debit, the Sponsor Bank can generate the requisite reports in case the ECS transaction is ‘returned.’

As everything moves electronically, the data can be exchanged quickly amongst the various participants in the process.

For an interesting article on the dishonor of cheques under the Negotiable Instruments Act, 1881, please refer here  NI ACT - Dishonor of Cheques

Thursday, June 9, 2011

Retail Electronic Payment Systems – NEFT / NECS / RECS / ECS – Levy of Processing Charges


Retail Electronic Payment Systems – NEFT / NECS / RECS / ECS – Levy of Processing Charges

The era of free lunch is over. As the volumes in Retail Electronic Payment Systems are zooming up, the various participants are looking forward to reduce their operating costs.

So far, the RBI had been waiving processing charges for retail electronic payment products (NEFT, NECS, RECS and ECS) since the year 2006 in order to promote the usage of these systems.

The last waiver by Reserve Bank of India was valid up to March 31, 2011. 

Today, vide RBI Notification No RBI/2010-11/559,DPSS (CO) EPPD No. /2649/ 04.03.01/2010-11, RBI has permitted   Clearing Houses / processing centers to levy charges on the originating banks as under :-

·        25 paise (exclusive of service tax) for every outward transaction
·        25 paise (exclusive of service tax) for every return transaction

The compensation to destination banks, to be paid by the originating banks is also finalized as under:

·        25 paise (exclusive of service tax) for every credit transaction
·        50 paise (exclusive of service tax) for every debit transaction

RBI has made it clear that the participant banks are not permitted to pass on these charges to customers.

 These charges will be applicable from July 01, 2011.

RTGS is not under Retail Electronic Payment Product; hence the charges for RTGS transactions are not covered under this notification.

These charges should encourage new players to set up processing centers and also enable the existing Clearing Houses / processing centers, to strength their infrastructure.

Of course, customers would not prefer to revert back to paper based from electronic mode, due to these charges.  
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Tuesday, September 14, 2010

Uniformity in penal interest payable by banks for delays in credit / return of NEFT / NECS / ECS transactions



Uniformity in penal interest payable by banks for delays in credit / return of NEFT / NECS / ECS transactions

As a customer friendly feature and to improve ePayments in India, Reserve Bank of India, DPSS, has issued a Notification on Uniformity in penal interest payable by banks for delays in
credit / return of NEFT / NECS / ECS transactions
.

The Notification No. is RBI/2010-11/188 DPSS (CO) EPPD No.  477/ 04.03.01 / 2010-11, dt. September 1, 2010.

This Notification can be accessed @

Why was this Notification required:-
01)  In terms of the NEFT / NECS / ECS Procedural Guidelines as also the relevant circulars / instructions issued by Reserve Bank of India,  from time to time, member banks need to afford credits to beneficiary accounts or return transactions (uncredited for whatever reason) to the originating / sponsor bank within the prescribed timeline. Any delays in doing so attract penal provisions specified therein.
02)  The penal provisions were  not uniform across these retail electronic payment systems
03)  The spike in the NEFT/ECS transactions is an encouraging feature.

The Highlights of the Notification are: _
01)  Uniformity has been brought in with respect to the penal interest payable for delayed credits/returns across Electronic Retail Products.
02)  The new rate at which the Banks have to pay the penal interest is RBI LAF Repo Rate plus two percent.
03)  The penal interest should be credited to the customer’s account, without any specific request from the customer. THIS IS THE BEST PART.
04)  NEFT Origination Banks have been advised to ensure that the NEFT Outward transactions are executed in the next available batch. This is for both across the counter as well as online requests.
05)  In case of likelihood of delays, the customers should be informed of the same.
06)  The changes are applicable with immediate effect.

The implications are:-
01)  This will encourage Banks to strengthen their ePayments infrastructure, not only the IT part, but also the points-of-delivery.
02)  This will encourage customers to move majority of their payments from the paper mode to electronic mode.



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Wednesday, July 14, 2010

ECS Debit – Return Reasons

ECS Debit – Return Reasons

It is observed that the number of ECS Transactions being RETURNED by the Destination Banks are  on the increase.

Your ECS Debit transaction can be rejected by your Banker for the following reasons


As per RBI’s Electronic Clearing Service (Debit Clearing) Procedural Guidelines, the following are the Standard Return Reasons.

Code No.        Reasons for Return

1.                    Account since closed / transferred

Explanation: - Account since closed – The destination account has been closed. Obviously, this has to be returned.

Account Transferred: This reason was valid in a de-centralised environment, when the ECs transactions were being routed to the base branch.
However, under CBS this is a very sparingly used Return Reason.

2.                    No such account:
Explanation: The account number in the ECS Transaction is not in the Destination bank’s books.
Potential causes: The customer’s account has been migrated to the CBS domain, and a new number allotted. However, the ECS transaction is still coming with the old Account number.



3.                    Account description does not tally
Explanation: The account holder’s name in the destination bank and the account holders name in the ECs transaction do not match.
This is a very rare reason, as the Account description is tallied at the time of the Mandate Acceptance by the Destination bank.

4.                    Balance insufficient
Explanation: Simple, inadequate balance to debit the ECS transaction amount. It is to be noted, that there should be sufficient balance at the time of the debit, and not during the business day. For eg: When the destination account is debited with the ECS transaction at 11.30am, 14/07/2010, sufficient balance should be there. It is of no use, if there was sufficient balance at 10.00am or 2.00pm on the same day.



5.         Not arranged for / exceeds arrangements
Explanation: This reason is used for Overdraft Accounts, where the drawn balance exceeds the available balance.

6.         Payment stopped by drawer
Explanation: The destination account holder has instructed his/her banks for  Stop Payments of the Particular ECS Transaction.
Potential causes: Dispute between the account holder and the Beneficiary. Loan account is closed, but still the ECS transactions are being routed.


7.         Payment stopped under court orders
Explanation: The message is clear, Payment stopped under court orders

8.         ECS mandate not received
Explanation: The Destination bank has not received the ECS Mandate.
ECS Mandate is the Debit Authorisation by the customer to the bank.

9.                    Miscellaneous (to be specified)
Explanation: Ah, this is the most exciting or treacherous Return Reason
Will explain in detail in tomorrow’s post





Monday, July 12, 2010

ECS Credit Mandate - Are they necessary now?

As per the ECS Credit Procedural Guidelines, a Mandate Form is required for ECS credits.

A Mandate for a ECS Debit transaction is understandable, but in today’s scenario, is a Mandate required for ECS Credits?

What are the transactions routed through the ECS Credit mechanism?
01)   Dividend payouts
02)   Salary payouts
03)   Government department payouts.
What does an ECS Credit Mandate contain?

The Model Mandate Form is quoted here from the Reserve Bank of India, ECS Cr procedural guidelines.


FORM NO.E-5

Appendix – VIII
Electronic Clearing Service (Credit Clearing)
Model Mandate Form
(Investor/customer’s option to receive payments through Credit Clearing Mechanism)
Name of the Scheme and the periodicity of payment
No.
1)    Investor/customer’s name:
2)    Particulars of Bank account
A          Name of the Bank     :
B          Name of the branch   :
            Address                     :
            Telephone No.           :
C         9-Digit code number of the bank and branch
appearing on the MICR cheque issued by the bank:
            D         Type of the account (S.B., Current or Cash Credit )
 with code (10/11/13)
            E          Ledger and Ledger folio number:
            F          Account number (as appearing on the cheque book)
(In lieu of the bank certificate to be obtained as under, please attach a blank cancelled cheque or photocopy of a cheque or front page of your savings bank passbook issued by your bank for verification of the above particulars)
3              Date of effect:
I hereby declare that the particulars given above are correct and complete. If the transaction is delayed or not effected at all for reasons of incomplete or incorrect information, I would not hold the user institution responsible. I have read the option invitation letter and agree to discharge the responsibility expected of me as a participant under the scheme.
(.....................................)
Signature of the Investor/Customer
Date
            Certified that the particulars furnished above are correct as per our records.
Bank’s Stamp
Date:                                                                                       (.................................)
Signature of the authorised
official of the Bank


In my view, the need for ECS Credit Mandates was required in the era of Physical Holding of Shares.
Once the shares moved into dematerialized mode, a Bank Account is compulsory.

And the bank account details are fed into the Demat Account screen. This screen captures all the data required for a successful ECS Credit transaction.    

Hence, in the present scenario there is no need for a ECS Credit Mandate form.


Tuesday, October 27, 2009

What is NECS and why is it required?




What is NECS and why is it required?

Ans; NECS stands for National Electronic Clearing Service. It is an inititative launched by Reserve Bank of India, as an improvement over the ECS –Electronic Clearing Service, currently in vogue.

ECS was launched more than two decades back, and the growth has been extraordinary.
Both the ECS Credits and Debit Products have delivered their mandates.

The major drawback of the ECS is that the Sponsor Institution has to submit the Processing Files to each Clearing House separately and also reconcile the entries Clearing House wise.

Presently, ECS system functions in a decentralized manner requiring users to prepare separate set of ECS data centre-wise. Users are required to have tie-up with local sponsor banks for presenting ECS file to each ECS Centre. 



There is no mechanism for the Sponsor Institution to centrally submit the Processing Files or to receive the Return Files. This was hampering the growth of ECS and the transactions were at a stagnant level.

To overcome the drawbacks associated with ECS, Reserve Bank of India, decided to launch the NECS

NECS was launched on 29th September 2008 by  Shri V.Leeladhar, Deputy Governor, Reserve Bank of India. He inaugurated the National Electronic Clearing Service (NECS) at a function at the Reserve Bank's National Clearing Centre (NCC), Mumbai. 
 

The service aims to centralize the Electronic Clearing Service (ECS) operation and bring in uniformity and efficiency to the system.


NECS (Credit) would facilitate multiple credits to beneficiary accounts destination branch at participating centre against a single debit of the account of a user with the sponsor bank.


NECS (Debit) would facilitate multiple debits to destination account holders against single credit to user account. 

The system has a pan-India characteristic leveraging on Core Banking Solutions (CBS) of member banks. This would facilitate all CBS bank branches to participate in the system, irrespective of their locations. 

In the new set-up, users have to prepare one consolidated NECS file and submit it centrally to the NCC, Nariman Point, Mumbai, through their sponsor banks. The sponsor banks would make use of the web-server provided for the purpose. The web-server also has the facility to get on-line data validation so that error free data could be uploaded for processing. 

The files can be uploaded up to the cut-off time one day prior to the settlement day by sponsor banks thus bringing down further the lead time required for processing. The returns also would get processed on the settlement day itself thus on the third day the users would have the status of the transactions. 

As on date 26,000+ bank branches are participating in NECS operations and other bank branches are expected to join in course of time. 

In the first phase, the NECS (Credit) was introduced. In May 2009, more than 2 million transactions were executed through NECS (Credit). Given the benefits offered by NECS, the need for local-ECS at various locations becomes redundant.  Accordingly, local-ECS-Credit at Mumbai has been merged with NECS-Credit.  



The NECS (Debit) would be introduced subsequently, based on the experience and feedback received from member banks. 


As the process flow for NECS (Debit) is different from NECS (Credit), i.e. Validation of Mandates is required for a NECS (Debit) Transaction, the NECS (Debit), was not launched in the first phase.

As Banks have seen the benefits accruing from a NECS (Credits), they have requested Reserve Bank of India, to introduce NECS (Debit) too.

Accordingly Reserve Bank of India vide its letter RBI/2008-09/509 DPSS (CO) EPPD No.2283 / 04.01.04 / 2008-2009 dated June 25, 2009, addressed to The Chairman and Managing Director / Chief Executive Officer of all banks participating in NECS, advised Banks to prepare themselves and also the respective NECS Participants to prepare themselves for the NECS(Debit) Variant too.

The Reserve Bank of India, letter can be accessed at


Consumers- Opt ECS and Save precious Time

Friday, December 12, 2008

FAQ's on Electronic Clearing Service-Credit(ECS-Cr)

Electronic Clearing Service(ECS) - FAQs

Q.1. What is Electronic Clearing Service (ECS)?

Ans It is a mode of electronic funds transfer from one bank account to another bank account using the services of a Clearing House. This is normally for bulk transfers from one account to many accounts or vice-versa. This can be used both for making payments like distribution of dividend, interest, salary, pension, etc. by institutions or for collection of amounts for purposes such as payments to utility companies like telephone, electricity, or charges such as house tax, water tax, etc or for loan installments of financial institutions/banks or regular investments of persons.

Q.2. What are the types of ECS? In what way they are different from each other?

Ans There are two types of ECS called ECS (Credit) and ECS (Debit).

ECS (Credit) is used for affording credit to a large number of beneficiaries by raising a single debit to an account, such as dividend, interest or salary payment.

ECS (Debit) is used for raising debits to a number of accounts of consumers/ account holders for crediting a particular institution.

Working of ECS Credit System

Q.3. Who can initiate an ECS (Credit) transaction?
Ans ECS payments can be initiated by any institution (called ECS user) who have to make bulk or repetitive payments to a number of beneficiaries. They can initiate the transactions after registering themselves with an approved clearing house. ECS users have also to obtain the consent as also the account particulars of the beneficiary for participating the ECS clearings.

The ECS user's bank is called as the sponsor bank under the scheme and the ECS beneficiary account holder is called the destination account holder. The destination account holder's bank or the beneficiary's bank is called the destination bank.

The beneficiaries of the regular or repetitive payments can also request the paying institution to make use of the ECS (Credit) mechanism for effecting payment.

Q.4. How does the ECS Credit system work?

Ans The ECS users intending to effect payments have to submit the data in a specified format to one of the approved clearing houses. The list of the approved clearing houses or the list of centres where the ECS facility has been provided is available at www.rbi.org.in.

The clearing house would debit the account of the ECS user through the account of the sponsor bank on the appointed day and credit the accounts of the recipient banks, for affording onward credit to the accounts of the ultimate beneficiaries.

Q.5. At which of the centres ECS facility is available?

Ans At present ECS facility is available at more than 60 centres and the full list is available at the web-site of RBI.

The beneficiaries need to maintain an account with one of the banks at these centres in order to avail of the benefit of ECS.


Q.6. How does a beneficiary participate in ECS (Credit ) scheme?

Ans The beneficiary has to furnish a mandate giving his consent to avail of the ECS facility. He should also communicate to the ECS user the details of his bank branch and account particulars. Such authorisation form is called a mandate.

Q.7. Will there be any need for the beneficiary to alter this mandate?

Ans Yes. In case the information/account particulars undergo change, then he has to notify the ECS user to carryout changes in order to ensure continued benefits from the ECS user. In case the account particulars at the destination branch do not match, the destination branches would return the credit through their service branch to the clearing house.

Q.8. Who will communicate the beneficiaries' about the credit?

Ans It is the responsibility of the ECS user to communicate to the beneficiary the details of credit that is being afforded to his account, indicating the proposed date of credit, amount and the relative particulars of the payment, so that the beneficiary can match the same with the details furnished by the bank in the account statement/passbook.

Q.9. What are the advantages to the ultimate beneficiary?
Ans
• The end beneficiary need not make frequent visits to his bank for depositing the physical paper instruments.
• He need not apprehend loss of instrument and fraudulent encashment.
• The delay in realisation of proceeds after receipt of paper instrument.

Q.10. How does the scheme benefit the ECS user-like corporate bodies/ institutions?
Ans
• The ECS user saves on administrative machinery for printing, dispatch and reconciliation.
• Avoids chances of loss of instruments in postal transit.
• Avoids chances of frauds due to fraudulent access to the paper instruments and encashment.
• Ability to make payment and ensure that the beneficiaries' account gets credited on a designated date.

Q.11. What are the advantages to the banks?
Ans
• Banks handling ECS get freed of paper handling.
• Paper handling also creates lot of pressure on banks as they have to encode the instruments, present them in clearing, monitor their return and follow up with the concerned bank and customers.
• In ECS banks simply get the payment particulars relating to their customers. All they need to do is to match the account particulars like name, a/c number and credit the proceeds
• Wherever the details do not match, they have to return it back, as per the procedure

Q.12. How can the customer track-down these payments?

Ans Banks have been advised to ensure that the pass-books/statements given to the customers reflect the particulars of the transaction provided by the ECS users. Customers can match these entries with the advice received by them from the payment institution.

Q.13. Is there any limit on the amount of Individual transactions?
Ans No value limit on the amount of individual transactions has been prescribed under the scheme.
Q.14. What are the Processing / Service charges? Is it a costly service?
Ans RBI has since deregulated Service Charges to be levied by sponsor banks. As regards Processing Charges levied by RBI and other banks managing the clearing houses, the same has been waived till March 31, 2009.
Q.15. Is it necessary for the corporates/institutions to collect mandate from the investors?
Ans Yes. A model mandate form has been prescribed for the purpose. Payment processing by banks becomes easier once the database is prepared. SEBI has also issued guidelines to investors to furnish their account numbers in their share applications for printing the same on the interest/dividend warrants, collecting the account particulars and mandates may not pose much problem.
Source: http://rbidocs.rbi.org.in/rdocs/ECS/DOCs/19631.doc

Thursday, December 11, 2008

FAQ's-Electronic Clearing Service-Debit (ECS-Dr)

Electronic Clearing Service(ECS) - FAQs

Q.1. What is Electronic Clearing Service (ECS)?

Ans It is a mode of electronic funds transfer from one bank account to another bank account using the services of a Clearing House. This is normally for bulk transfers from one account to many accounts or vice-versa. This can be used both for making payments like distribution of dividend, interest, salary, pension, etc. by institutions or for collection of amounts for purposes such as payments to utility companies like telephone, electricity, or charges such as house tax, water tax, etc or for loan installments of financial institutions/banks or regular investments of persons.

Q.2. What are the types of ECS? In what way they are different from each other?

Ans There are two types of ECS called ECS (Credit) and ECS (Debit).

ECS (Credit) is used for affording credit to a large number of beneficiaries by raising a single debit to an account, such as dividend, interest or salary payment.

ECS (Debit) is used for raising debits to a number of accounts of consumers/ account holders for crediting a particular institution.

Working of ECS Debit System

Q.3. What is ECS (Debit) scheme?

Ans It is a scheme under which an account holder with a bank can authorise an ECS user to recover an amount at a prescribed frequency by raising a debit in his account. The ECS user has to collect an authorisation which is called ECS mandate for raising such debits. These mandates have to be endorsed by the bank branch maintaining the account.



Q.4. How does the scheme work?

Ans Any ECS user desirous of participating in the scheme has to register with an approved clearing house. The list of approved clearing houses is available at RBI web-site www.rbi.org.in. He should also collect the mandate forms from the participating destination account holders, with bank's acknowledgement. A copy of the mandate should be available with the drawee bank.

The ECS user has to submit the data in specified form through the sponsor bank to the clearing house. The clearing house would pass on the debit to the destination account holder through the clearing system and credit the sponsor bank's account for onward crediting the ECS user. All the unprocessed debits have to be returned to the sponsor bank within the time frame specified. Banks will treat the electronic instructions received through the clearing system on par with the physical cheques.

Q.5. What are the advantages to the ultimate beneficiary?

· Trouble free- Eliminates the need to go to the collection centres/banks by the customers and no need to stand in long ‘Q’s for payment

· Peace of mind- Customers also need not track down payments by last dates.

· The debits would be monitored by the ECS users.

Q.6. How does the scheme benefit the ECS user-like corporate bodies/ institutions?

Ans

· The ECS user saves on administrative machinery for collecting the cheques, monitoring their realisation and reconciliation

· Better cash management.

· Avoids chances of frauds due to fraudulent access to the paper instruments and encashment.

· realise the payments on a single date instead of fractured receipt of payments.

Q.7. What are the advantages to the banks?

Ans

· Banks handling ECS get freed of paper handling.

· Paper handling also creates lot of pressure on banks as they have to encode the instruments, present them in clearing, monitor their return and follow up with the concerned bank and customers.

· In ECS banks simply get the mandate particulars relating to their customers. All they need to do is to match the account particulars like name, a/c number and debit the accounts.

· Wherever the details do not match, they have to return it back, as per the procedure.

Q.8. Can the mandate given once be withdrawn or stopped?

Ans Yes. The mandate given is on par with a cheque issued by a customer. The only stipulation under the scheme is that the customer has to give prior notice to the ECS user, to ensure that they do not include the debits.

Q.9. Can the customer stipulate any maximum debit, purpose or validity period for the mandate?

Ans Yes. It is left to the choice of the individual customer and the ECS user to finalise these aspects. The mandate can contain a maximum ceiling; it can also specify the purpose as also a validity period.

Q.10. What is the current coverage of the scheme?

Ans At present the scheme is in operation at 15 RBI centres (ie centres where RBI manages the Clearing House operations) and at other centres where Public Sector Banks manage the clearing operations. The list of centres is available at the RBI web-site under the procedural guidelines.

Q.11. Processing charges on individual transactions

Ans RBI has deregulated the service charges that could be levied by sponsor banks. RBI has waived the processing charges levied by RBI and other banks managing the clearing houses till March 2009.

Q.12. Which are the institutions eligible to participate in the ECS Debit scheme?

Ans Utility service providers such as telephone companies, electricity supplying companies, electricity boards, credit card collections, collection of loan installments by banks and financial institutions, and investment schemes of Mutual funds, etc.

Source: http://rbidocs.rbi.org.in/rdocs/ECS/DOCs/19631.doc

Saturday, November 29, 2008

Frequently Asked Questions (FAQ) on Payment and Settlement Systems

The central bank of any country is usually the driving force in the development of the national payment system. The Reserve Bank of India (RBI) as the central bank of the country has been playing this developmental role and has taken several initiatives for a safe, secure, sound and efficient payment system. Some of the questions frequently asked in this regard are presented below in the form of an FAQ.

1. What is a Payment System?
A Payment System is a mechanism that facilitates transfer of value between a payer and a beneficiary by which the payer discharges the payment obligations to the beneficiary. Payment system enables two-way flow of payments in exchange of goods and services in the economy.

2. What are the components of any payment system?

Payment systems include instruments through which payments can be made, rules, regulations and procedures that guide these payments, institutions which facilitate payment mechanisms and legal systems etc. that are established to facilitate transfer of funds between different participants.

3. Who can use payment systems to make payments?
Payment systems are used by individuals, banks, companies, governments, etc. to make payments to one another. In other words, any body who has to make a payment to any one else can use one or the other form of payment system to make such a payment.

4. What are the ways in which a customer can make payments through banks?
Payments can be made in India in the form of cash, cheque, demand drafts, credit cards, debit cards and also by means of giving electronic instructions to the banker who will make such a payment on behalf of his customers. Electronic payments can be made in the form of Electronic Funds Transfer (EFT), Electronic Clearing Service (ECS) for small value repetitive payments and through Real Time Gross Settlement (RTGS) System for large value payments. A few banks in India have begun to offer certain banking services through Internet that facilitate transfer of funds electronically.

5. How is the payment made when a payer issues a cheque to the payee?
The process of cheque payment starts when a payer gives his personal cheque to the beneficiary. In order to get the actual payment of funds, the receiver of the cheque has to deposit the cheque in his bank account. If the beneficiary has an account in the same bank in the same city then the funds are credited into his account through internal arrangement of the bank. If the beneficiary has an account with any other bank in the same or in any other city, then his banker would ensure that funds are collected from the payer’s banker through the means of a clearinghouse.

6. What is a Clearing House?
A clearinghouse is an association of banks that facilitates payments through cheques between different bank branches within a city / place. It acts as a central meeting place for bankers to exchange the cheques drawn on one another and claim funds for the same. Such operations are called as clearing operations. Generally one bank is appointed as in-charge of the clearing operations. In the four metros and a few other major cities, the Reserve Bank of India is looking after the operations of the clearinghouse. Each clearinghouse has uniform regulations and rules for the conduct of its operations as prescribed by RBI. There are more than 1000 clearing houses operating all over the country facilitating cheque payments. These are managed by the RBI, State Bank of India and other public sector banks.

7. What is the time taken for this clearing process?
Generally, if a cheque is to be paid within the same city (local cheque), it would take 2-3 days. In some large cities, there is a system called High Value Clearing which facilitates completion of cheque clearing cycle on the same day and the customer depositing the cheque is permitted to utilize the proceeds next day morning. However, coverage of this High Value Clearing is very limited and usually available at the branches in the main business area; say Fort and Nariman Point area in Mumbai and Connaught Place in New Delhi.
In the case of outstation cheques, the time taken would vary from three to ten days. RBI has advised all the banks to publicise their cheque collection policy so that customers have an idea as to when the proceeds would be available for utilization by the customer. For delay beyond the normal period, the banks are required to compensate the customer (even without customer asking for the same)

8. Would a bank customer incur any charges by using cheques for payments?

The person receiving payment by means of cheques would incur some charges to realise the funds through this bank. In case of local cheques, no charges are levied. In case of outstation cheques, the bank would take some processing / collection charges depending upon the amount of the cheque and the place from where it has to be realized. The charges levied by the banks are generally decided by the Indian Banks’ Association or the banks themselves. Banks are also required to publicize the schedule of service charges.

9. How can payments be made without use of cheques and cash?

Payments can be made between two or more parties by means of electronic instructions without the use of cheques. Retail payment mechanisms available to facilitate such payments are the Electronic Funds Transfer, Electronic Clearing Service, credit / debit cards etc.

10. Can a customer of a bank use the ATM of some other bank?
Yes, if the customer’s bank has an arrangement with the bank owning the ATM. Presently, stand alone ATMs are very few and usually such stand alone ATMs are installed at the branch premises. In case ATM of another bank is used, normally a service charge called "inter-change fee" is levied on the customer.

11. Are ATMs used only for cash withdrawal?

In addition to cash withdrawal, ATMs can be used for payment of utility bills, funds transfer between accounts, deposit of cheques and cash into accounts, balance enquiry and several other banking transactions which the bank/s owning the ATM's might want to offer.


12. What is the role of credit / debit cards in payment systems?
Credit / Debit cards are being widely used in the country as they provide a convenient form of making payments for goods and services without the use of cheques and cash. Banks issue credit cards to their customers. The merchant establishment who accepts credit / debit card payments will claim the amount from the customer’s bank through his own bank.


13. How is a Debit Card different from Credit Card?

Debit Card is a direct account access card. (Amount transacted gets debited immediately). The amount permitted to be transacted in debit card will be to the extent of the amount standing to the credit of the card user’s account. On the other hand, a credit card involves provision of credit to the card user, which is paid by the card user on receipt of the bill either in full or partially in installments.

14. What is EFT?
Electronic Funds Transfer (EFT) is a system whereby anyone who wants to make payment to another person / company etc. can approach his bank and make cash payment or give instructions / authorisation to transfer funds directly from his own account to the bank account of the receiver / beneficiary. Complete details such as the receiver’s name, bank account number, account type (savings or current account), bank name, city, branch name etc should be furnished to the bank at the time of requesting for such transfers so that the amount reaches the beneficiaries’ account correctly and faster. RBI is the service provider for EFT.

15. Can I use EFT to transfer funds anywhere in India?

As of now, EFT facility is available for transfer of funds between bank branches in about 15 major cities and towns across the country. Under another special scheme called as Special EFT, many more select branches (which are on the computer network of the banks) in over 200 cities have been brought into the fold of funds transfer electronically. The details of the cities and branches can be had from the respective banks as also from the RBI website.

16. How long does it take to transfer funds through EFT?
Funds transfer normally takes place on the same day or at the most the next working day depending upon the time of requesting / effecting such funds transfers. The customer should confirm this aspect from his bank at the time of requesting the funds transfer.

17. Are there any charges for transferring funds through EFT?
The banks generally charge some processing charges for EFT just as in the case of other services like demand drafts, pay orders, etc. The actual charges depend upon the amount and the banker-customer relationship. However, for the present, the RBI has waived all its charges on EFT that were being recovered from the banks for processing such funds transfer transactions at the clearing houses run by RBI. This has certainly reduced the processing cost for the banks also.

18. How can I make use of Electronic Clearing Service for receiving funds / making payments?
Electronic Clearing Service (ECS) is a retail payment system that can be used to make bulk payments / receipts of a similar nature especially where each individual payment is of a repetitive nature and of relatively smaller amount. This facility is meant for companies and government departments to make/receive large volumes of payments rather than for funds transfers by individuals. The ECS facility is available in 47 centres across India operated by RBI at places where it manages the clearing houses and by SBI and its associates in other centres. The ECS is further divided into two types – ECS (Credit) to make bulk payments to individuals/vendors and ECS (Debit) to receive bulk utility payments from individuals.

19. What is ECS (Credit)?
Under ECS (Credit) one entity / company would make payments from its bank account to a number of recipients by direct credit to their bank accounts. For instance, companies make use of ECS (Credit) to make periodic dividend / interest payments to their investors. Similarly, employers like banks, government departments, etc make monthly salary payments to their employees through ECS (Credit). Payments of repetitive nature to be made to vendors can also be made through this mode. For this purpose, the company or entity making the payment has to have the bank account details of the individual beneficiaries. The payments are affected through a sponsor bank of the Company making the payment and such bank has to ensure that there are enough funds in its accounts on the settlement day to offset the total amount for which the payment is being made for that particular settlement. Sponsor bank is generally the bank with whom the company maintains its account.

20. What is ECS (Debit)?
ECS (Debit) is mostly used by utility companies like telephone companies, electricity companies etc. to receive the bill payments directly from the bank account of their customers. Instead of making electricity bill payment through cash or by means of cheque, a consumer (individuals as well as companies) can opt to make bill payments directly into the account of the electricity provider / company / board from his own bank account. For this purpose, the consumer has to give an application to the utility company (provided the company has opted for the ECS (Debit) scheme), providing details of bank account from which the monthly / bi-monthly bill amount can be directly deducted. Such details have to be authenticated by the bank of the customer who opts for making payments through this mode. Once this option is given, the utility company would advise the consumer’s bank to debit the bill amount to his account on the due date of the bill and transfer the amount to the company’s own account. This is done by crediting the account of the sponsor bank, which again is generally the bank with whom the company receiving the payments maintains the account with. The actual bill would be sent to the consumer as usual at his address as before.

21. Are there any charges for using the ECS?
As in the case of EFT, RBI has waived all its processing charges to the banks for the present. The banks, however, are free to charge a fee from their corporate customers for use of this facility.

22. How can an NRI remit money into India?
As an NRI, an individual can remit funds into India through normal banking channels using the facilities provided by the overseas bank. Alternately, an NRI can also remit funds through authorised, Money Transfer Agents (MTA). Of late, a good number of banks have launched their inward remittance products, which facilitate funds transfer in matter of hours.

23. How do banks make payments for their own transactions?
Ordinarily, the transactions among banks (not pertaining to customer transactions) would be for large values. Hence such transactions are called as large-value funds transfers. The actual transfer of funds will take place through the accounts, which the banks maintain with the RBI. For this purpose, banks can give cheques drawn on their account maintained with RBI to one another, which will then be processed through the clearinghouse. Alternatively, they can also make use of large value payment system called as Real Time Gross Settlement System where funds transfer takes place instantaneously, based on electronic instructions just like EFT in the case of individuals and companies.

24. What is Real Time Gross Settlement System?
Real Time Gross Settlement (RTGS) system, introduced in India since March 2004, is a system through which electronic instructions can be given by banks to transfer funds from their account to the account of another bank. The RTGS system is maintained and operated by the RBI and provides a means of efficient and faster funds transfer among banks facilitating their financial operations. As the name suggests, funds transfer between banks takes place on a ‘real time’ basis. Therefore, money can reach the beneficiary instantaneously and the beneficiary’s bank has the responsibility to credit the beneficiary’s account within two hours.

25. Can individuals make payments through RTGS system?
Yes, individuals can transfer funds through RTGS system through their banks. Though the system is primarily designed for large value payments, bank customers have the choice of availing of the RTGS facility for their time critical low value payments as well. There is no definition of "low value" or "large value" for the purpose of RTGS transaction. As on November 2008, RTGS facility was available at more than 51000 bank branches at 600+ cities and towns in India. At present, not all bank branches are enabled to process RTGS system funds transfer. A customer who desires to use this facility should approach his bank to find out whether his own bank branch as well as the beneficiary’s bank branch is enabled to transfer funds through RTGS system. Banks may levy charges for such funds transfers at their discretion and based on the customer-bank relationship. The customer, in turn, is entitled to claim interest for delay in credit of funds into the beneficiary’s account.

26. Whom should I approach in case of any complaints relating to customer services under payment systems?
The customer may approach the bank concerned to redress the complaint. In case of lack of response / satisfactory redressal by the bank, the customer may approach the Grievance Redressal Cell in the local RBI office, if any. The customer may also approach the office of the Banking Ombudsman for redressal of his complaint.

27. What is Cheque Truncation?
Cheque Truncation is a system of cheque clearing and settlement between banks based on electronic data/images or both without physical exchange of instrument.

28. How would Cheque Truncation benefit the bank customers?
The bank customers would get their cheques realized faster as T+0 local clearing and T+1 inter-city clearing is possible in Cheque Truncation System (CTS). As straight through processing and automated payment processing are enabled by CTS faster realization is accompanied by a reduction in costs for the customers and the banks. It is also possible for banks to offer innovative products and services based on CTS. The banks have additional advantage of reduced reconciliation and clearing frauds.

29. What is the role of RBI in payment systems?
The RBI, apart from the role of regulator and supervisor of payment systems, plays the role of a Settlement Bank apart from being a catalyst, an operator and a user. The RBI has been taking initiatives in introducing new modes of more efficient and safe means of effecting payments in the country on a continuous basis. The RBI introduced the system of Magnetic Ink Character Recognition (MICR) based cheque clearing during late 80's for four metropolitan cities (Mumbai, New Delhi, Chennai and Kolkata). During mid 90s, electronic payment systems like ECS and EFT were introduced. During 2004-05, RTGS was introduced. Besides introducing these newer mechanisms or systems, the RBI has also been constantly ensuring that the existing systems are upgraded / refined to increase their efficiency and to meet the requirements of customers. Taking advantage of advancements in technology, the RBI has brought in additional safety measures in these systems to make them secure and also to maintain the integrity of such transactions.
Besides operating the various components of payments systems, RBI also participates in these systems as a user. RBI acts as a service provider and after the system stabilizes, the responsibility is handed over to other banks / institutions for further development. RBI also has the role of regulating and supervising the various payment systems.

30. How does RBI regulate payment systems?
The Board for regulation and supervision of Payment and Settlement Systems (BPSS) is a sub-committee of the Central Board of the RBI and is the highest policy making body on payment system. The Board is assisted by a technical committee called National Payments Council (NPC) with eminent experts in the field as members. The Board as well as the council are assisted by a newly created department the Department of Payment and settlement Systems (DPSS). The Board has been entrusted with the responsibility to authorise, prescribe policies and set standards for all existing and future payment systems in the country. The Board also has the powers to determine membership criteria to these systems and related policies.

31. What were the major developments in payment and settlement systems in India during the last decade?
During the last decade, payment system services offered by banks to the common persons as well as the corporate bodies have improved substantially. It is partly due to increased use of technology in service delivery and partly due to procedural changes necessitated in the wake of competition amongst the banks.
Changes visible are the following:
Firstly, cheque-clearing system has vastly improved. Time taken for collecting a local cheque has now reduced to two or three days. It used to take 4 or 5 days earlier. At 42 large cities automated cheque processing centers have been set up where cheques received by all bank branches in the city are processed at night. Time taken for collection of outstation cheques has also been reduced. Now it takes 4 to 10 days depending on location of the paying centres. It used to take 10 days to one month earlier.
Secondly, during the 90s, a few variants of electronic payment products were introduced. Electronic Clearing Service (ECS) helped large corporate bodies to pay their dividend, interest and refunds electronically on the due date. Not only the investing public could get the payment on the due date, but also the corporates could save substantially by not having to print paper instruments. One can imagine the extent of savings from the fact that 36 million of such transactions were routed through ECS during the year 2005-06. Similarly, the utility bodies are now in a position to collect their bills through ECS right on the due date. Cash flow management is getting easier. There were 16 million such transactions during 2004-05.
Thirdly, extension of electronic funds transfer (EFT) facility by the banks has altered the money transfer scenario. Using the EFT infrastructure laid by the Reserve Bank, commercial banks have started offering same-day funds transfer facility to their customers. Bank customers at 15 major centers can transfer funds to one another using this facility. A variant of EFT called Special-EFT has been designed specially for the networked branches which facilitates funds transfer on the same day within the closed group of computerized and networked branches located any where in the country. Banks with Internet banking infrastructure are receiving requests from their customers for EFT and executing the requests in a straight-through manner.
Fourthly, launching of Real-Time Gross settlement (RTGS) system by RBI has added a new dimension to EFT scenario. Corporate bodies and other bank customers have now the option to transfer funds to designated branches (around 9600 at present) instantaneously. As per the RTGS operating rules, if the credit cannot be applied, it should be returned within 2 hours- meaning thereby that the maximum delay can be 2 hours.
Fifthly, there has been a rapid growth in installation of ATMs in the country. Bank customers can now access their accounts for withdrawal of cash, deposit of cash, balance enquiry, requisition of cheque books, issue of stop-instruction etc. on 24X 7 basis. ATM population is around 16,000 in the country at present and in increasing by a few hundreds each month.
Sixthly, In the last three or four years there has been a phenomenal growth in use of payment cards (debit and credit cards) as a payment medium in the country. As at the end of December 2004 there were 4.33 crore-payment cards in the country. The increasing use of cards is not only due to the safety and convenience aspect but also on account of retail consumer boom, which has taken place in the country.

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