ECH/NACH Mandate in Banking
ECH/NACH Mandate in Banking
In the banking ecosystem, automation and efficiency are critical for both customers and institutions. One key enabler of automatic financial transactions is the ECH/NACH mandate. This system allows organizations to debit or credit bank accounts of customers on a recurring basis with proper authorization. It is especially useful for services such as loan repayments, insurance premiums, SIPs, and utility bills.
What is ECH/NACH Mandate?
ECH stands for Electronic Clearing House and NACH stands for National Automated Clearing House. These are systems developed to facilitate bulk transactions that are repetitive and periodic in nature. ECH was the earlier version managed by the Reserve Bank of India, whereas NACH is an advanced platform operated by the National Payments Corporation of India (NPCI).
A mandate in this context refers to a legal instruction given by a customer to their bank authorizing another party (such as a lender or service provider) to debit a specified amount at regular intervals from their account.
Use of NACH Mandate
The NACH mandate is used for various purposes including:
- EMI collection for loans
- Premium collection for insurance policies
- Utility bill payments (electricity, water, gas)
- Mutual fund SIPs
- Subscription services
This mandate helps ensure timely payments without the need for manual intervention each time, improving customer convenience and reducing defaults for service providers.
Example
Let’s understand the process with a real-world example. Suppose a customer, Mr. Raj, takes a personal loan from XYZ Bank. During the loan agreement process, he is asked to sign a NACH mandate form.
This form includes details such as:
- Customer’s bank account number
- IFSC/MICR code
- Maximum debit limit per transaction
- Frequency of debit (e.g., monthly)
- Start and end date of the mandate
Mr. Raj fills out this form, signs it, and submits it to the bank. The bank then sends this mandate to NPCI for validation. Once approved, the EMI amount is automatically debited from Mr. Raj’s account every month on the agreed date. No further manual action is needed unless Mr. Raj decides to cancel or modify the mandate.
The ECH/NACH mandate system simplifies the process of recurring payments by automating them with prior authorization. It brings convenience, timeliness, and reduces the risk of missed payments, making it a valuable tool for both customers and financial institutions.
