The full form of NACH is National Automated Clearing House. NACH is the centralised web-based payment solution that helps the banks, corporate sectors, government and other financial institutions to handle bulk payments. High volume transactions such as dividend and salary pay by the corporate, subsidies and pensions payment by the government and such can be easily done through NACH. The system will also assist the financial institutions and corporate to receive high volume payments as well. High volume payments that consist of water, electricity, telephone bills, loan amounts, EMIs, mutual fund investments payments can be received through NACH solution.
The system is launched by National Payment Corporation of India, also known as NPCI. The solution will facilitate all kind of interbank, electronic transfers for bulk volume payments in easy ways. Through NACH the any payment can be made through ECS irrespective of the geographical location of the banks across the nation.
Payment System in India is authorised and implemented by the Reserve Bank of India. The payment system is a solution through which the central bank of the country has allowed core banking through electronic solution. There are Net and Gross payment system by RBI. Reserve Bank has left no stone unturned to facilitate diverse methods of payment system to assist banking and transactions across the nation. RTGS is one such Gross Payment System.
Electronic transfers allow one to transfer bulk volume money hassle free through electronic payment solution. Currently more than 75% of the total transaction across the nation is done by online payment system only. Now with innovation of new and advanced technology the RBI has allowed mobile banking and online banking for the high volume payments anywhere in the country.
Plastic money is also an important part of payment system in India today. It largely overshadowed paper transactions in most of the parts of the nation. Debit cards and Credit Cards are the example of plastic money in India.
Reserve bank of India has initiated both Gross and Net payment system in India. Real Time Gross Settlement or RTGS is the example of Gross payment settlement in India. In RTGS the payment is made through online system and by Real Time it shows that the payment will be made then and there. These payments are made for the gross settlements.
In case of Net payment system, there is National Electronic Fund Transfer (NEFT) is a common and takes place more often in India for high volume payments. It is a one-to-one payment system that allows one to pay for services or products. This is a time consuming method though it takes less time than other methods, but it has some steps through which the payment is channelized.
Debit card and credit cards, as mentioned are the examples of plastic money in India. Most of the shops, retailers, online shopping portals have point of sale equipment to collect payment through credit and debit cards. One can also pay for utilities through the plastic money as well.
Electronic Clearing Service is another mode of Net payment system is India. NACH is replacing the ECS for Credit as well as Debit.
In 2007, the Payment and Settlement systems started by the Reserve bank of India under the Payment and Settlement Act. It was a big step taken by the Indian government to encourage e-payment or online transaction in the nation. It was declared by the Governor of India that the regulation will be completely handled by the Reserve Bank of India. The entire supervision, regulation and activities of the Payment and Settlement System in India is regulated and handled by RBI only. There are some basic instruction and information that commercial banks have to consolidate regarding the confidential information of the customers. Apart from these basics the entire regulation is maintained by the Reserve Bank of India.
Looking at the current scenario of online payment services, the central bank of the nation has also facilitated Non-banking Financial Corporations to involve in e-payments. There is a number of NBFCs and other financial institutes that are also allowing NEFT and other payment and settlement system.
National Payment Corporation of India as known as NPCI has incorporated in the year 2005. The organisation was set up in the supervision of the central bank of India that is Reserve Bank of India. RBI has initiated the idea of setting up the NPCI with the objective of encouraging Retail Payment System in the nation.
NPCI has formed to facilitate all the financial institutions, government, corporate sectors and Banks along with NBFCs to access the Retail Payment System easily. This also helps one to engage in high volume of money transaction at a single go. There are 10 prominent nationalised and private banks that are said to be the promoters of NPCI. These banks are State Bank of India, Union Bank of India, HSBC, HDFC, ICICI Bank, Canara Bank, Citibank, Bank of Baroda, Punjab National Bank and Bank of India.
ICICI, HSBC, HDFC and Citibank are the private banks that are involved in promoting NCPI. The online transaction through NCPI has climbed up to 20 million per day from mere 2 million per day in last few years. The RBI has set up the organisation to encourage Retail Payment System which is growing at increasing rate in India.
NACH is a part of NCPI that was started in the year 2007. The National Automated Clearing House, regulated and supervised by RBI, is a web-based payment solution for bulk money transaction. Small retailers, government, corporate sectors, NBFCs, Banks and such are encouraged for core banking and interbank transaction via online and mobile banking with the help of NACH.
NACH Credit is an electronic payment service governed by the Reserve Bank of India for the bulk payment by the organisation and corporate sectors. Through NACH Credit any organisation that is authorised under RBI guidelines can make huge payments to the multiple beneficiaries directly to their personal bank accounts. Salary from the corporate, dividends, pension, interest and subsidies are provided therough NACH Credit system by using single system.
NACH debit is similar to NACH Credit. It is system in NACH through which banks and other financial institutions can accept payments in large volume without interference / barriers of the third party. Through NACH Debit bulk payments like utility charges can be collected through single settlements. The banks, NBFCs, corporate sectors and government can easily accept large amount of payment like EMI, loans, electricity bills, water, tax and other payments.
Electronic Clearing System is the method of online payment and money transaction and NACH was initiated to solve the issues that ECS encounters regarding payment process. There are a number of differences that make the NACH better than the ECS now.
The NACH system provides end-to-end processing of mass electronic payment instructions with the following objectives:
The NACH system is based on Core-Banking Solution (CBS) of the participating banks for centralized posting of internal debit / credit transactions and NPCI would run the Centralized administration from Chennai or as might be chosen from time to time, with settlement in the books of Reserve Bank of India (RBI).
NACH has taken over the ECS transactions since the first day of the month of May that is 1st May 2016. It will be applied to all the ECS transactions. Payments like interest premiums, SIP in mutual funds, Utilities, credit card bills and any other bulk payments can be easily made with NACH. People who are already using ECS will not get affected by this new NACH. However when their ECS gets expired, they are required to register under the NACH as a new user as their will not be any renewal of ECS. For the new users they will not get any ECS registration as since 1st of May the new registration for ECS has been closed.
Those who are still using ECS will not get converted to NACH automatically. Either the users can close the ECS and register freshly with NACH or they can wait until the expiry of their ECS account and then they can start with NACH.
There are two ways to register for NACH. Some of the commercial banks provide paper forms to the users to apply for it while most of the leading banks choose online process and providing e-Mandate to the customers for registration process.
The most important benefit of NACH in investing in Mutual Fund is that the time to SIP registration is much lesser than in ECS. Unlike ECS where it takes 30 days to register an investor, NACH taken only 10-15 days and completes the entire process perfectly.
IN NACH there is another advantage that can be added that from now onwards the investor does not need to pay through cheques or online transfer while investing in mutual funds at any point of time. They can easily use NACH for the lump sum payment to invest in multiple portfolios or in single portfolio. The fund-house system helps in here.
Another benefit with NACH is that the payment is made and collected in a same day. Due to this the investor can be able to track the investment and payments that he made.
NACH has made investing in Mutual Funds way too easy. It is a onetime registration process, so the mandate has to register with NACH for single time and can use it for investing in Mutual Find for a long time unlike ECS. Here once the mandate is registered with NACH, it automatically linked with the bank account that the mandate is using for the Mutual Fund Folio. It will be automatically authorised and there will be a payment process takes place every month. The maximum amount must be set by the mandate.
It can be done as fixed time span (say a year or couple of years) or it can be done manual. In the manual process the debit will continue unless the mandate cancels the process. The only thing is to be noted that the Mandate can use only one folio for one mandate registration. If the user has multiple folios then there needs to be separate forms for each folio.
NACH does not affect the existing Mutual Fund SIPs. Those who are applying for new SIPs they have to register with NACH. But those who already have ECS mandate for their SIPs can continue with it till the expiry of the SIP. Once the ECS is expired the investor if he / she wish to renew the SIP then has to go with NACH registration process. Until then ECS Mandate and existing SIPs will be unaffected by the new NACH process.
NACH OTM is a onetime mandate form that must be filled up by the user for registration under NACH. The form contains some details that one must enter in full and correctly. The details are:
Currently more than 1000 banks are supported NACH. There is a long list of the banks which are registered under the NACH. The list is available in the official website of the NPCI.
NACH is being introduced to facilitate everyone who are involved in bulk and high volume payments every month or so. From the customers to the banks to the organisations – everyone will be equally benefited through NACH system.
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