Banks told to weed out ECS glitch

Banks routinely debit accounts of customers based on electronic clearing service (ECS) file received from the clearing house without any means of cross-checking with customer mandates for any flaws.

This deficiency was revealed during an informal survey conducted by the Reserve Bank of India (RBI).

This has prompted the central bank to ask banks to initiate steps for incorporating an appropriate mandate management routine for handling ECS debit transactions "as early as possible".

Most retail customers were reluctant at signing up mandate forms for payment of equated monthly instalments (EMIs) till just over a year back because of low comfort levels over the electronic payment option.

Electronic clearing option started catching up over a year earlier with over 20 per cent of all loan accounts on an incremental basis being accompanied by ECS debit mandates.

The staff at banks were burdened with piles of paperwork with the start of the retail banking boom a few years ago. Retail loans generate a lot of cumbersome paperwork with regard to collection of EMIs. The increasing acceptance of ECS debit is lessening the workload of banks' employees.

The pace of growth of electronic debit clearing transactions is much higher than that of credit clearing, and many utility companies have been utilising the system for collection of bills relating to utility payments, EMIs, etc.

ECS debit works on the strength of the mandates given by the destination account holders to the user institutions for raising a debit in their accounts. A copy of the mandate is sent either by the account holder or the user institution to the bank for it to check the validity of the debit instruction raised through ECS.

RBI said that bank branches have indicated that the software solutions being used by them do not have the provision to record any ECS debit mandate.

If available, it may be for only one or two mandates whereas certain account holders have given mandate to several utility organisations for raising debit through ECS.

RBI has conveyed to banks that debit mandate management system would have to be a part of the housekeeping function. The mandate should contain the validity period and the upper limit for individual transaction. The upper limit may vary from mandate to mandate.