All You Need To Know About NACH’s E-Mandate

An overview of the NACH e-Mandate system 

The National Electronic Fund Transfer (NEFT) is a quick, reliable and secure system of transferring funds from one bank to another. It is the most preferred mode of fund transfer in India. NEFT is used by individuals, businesses and organizations for making small or large payments.

The NACH mandate is an authorization that a consumer provides to a financial institution or corporate body to debit or credit funds. The NACH mandates help in consolidating multiple Electronic Clearing Services (ECS) to enable high and low volume transactions on the NACH e-mandate platform. With a nationwide presence, the NACH mandate is all set to incorporate the entire banking system irrespective of the location of branch location. NACH mandate has seen exponential growth until now, with more than 82,000 core banking allowed bank branches. This has entirely changed the landscape of the bulk recurring payment systems in India.

The ambit of the NACH e-mandate has widened over the years, and now students can also use the platform for recurring payments of the student loan EMI. So, seeing it from a narrow scope of corporate finance solutions might be underrating. 

In the above paragraph, we have understood what is Nach and now we will understand in this blog below how it works..

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NACH e-mandate: how it works

The NACH e-mandate is a process to make payment of EMIs easier and more convenient. The new system has smooth functioning, and it works via linking the Aadhar or PAN with the e-NACH. There is no use in going through paperwork that may be a bit clumsy at times in the new system. The new system relies on the transfer of all the relevant data like the details of EMI, Loan, etc. The verification process is entirely online, and there is no physical interface whatsoever. Now we will explain the working in the following steps:

Step 1: Customer registration

The customer needs to register himself/herself for using this facility by providing their name, email address and mobile number along with some other details like bank account number, PAN/Aadhaar number etc.

Step 2: Bank registration

The bank needs to register itself as well by providing its name along with some other details like IFSC code etc.

NACH not only for Corporates and Banks

There has been a misconception that NACH is solely restricted to easing the operations of corporates and finance bigwigs. But NACH has a considerable role to play in the life of a commoner. One of the long-faced problems for the working class is that they weren’t able to get their salaries on bank holidays. Companies usually transfer all the salaries in one day, and this wasn’t possible with the earlier system, but now with NACH e-mandate, it is possible. RBI has announced that from 1st August 2021, NACH transactions will be available on all days.

NACH e-mandate is an electronic mandate through which you can authorise your bank to debit your account and make payments on your behalf by initiating an electronic instruction through a secure channel during banking hours (from 9 am to 5 pm).

You may also like to read about digital payment in India.

ECS to NACH transition is necessary

Electronic Clearing System (ECS) is an electronic funds transfer system developed by National Payments Corporation of India (NPCI). It was introduced in 2002 and was used primarily for bulk fund transfers through electronic banking channels.

ECS or the Electronic Clearing System used to be the preferred platform for regular and periodic fund transfers. But there were many limitations with ECS, which considerably slowed the speed of bulk transactions. The cost of operation was also high, and on top of it, the method was not so secure. NACH is the new solution for the age-old problem, and it is developed by taking insights from regulators like RBI to leading banks of India. 

ECS had a limited reach, and it was available at only 89 centers. Out of the total, 15 were maintained by the RBI, while commercial banks maintained the rest. On the other hand, NACH is operational at more than 82,000 banks branched across the length and breadth of the country.

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