What is the National Automated Clearing House (NACH)?

The National Automated Clearing House or NACH is a web-based clearing service which is an improvement over the previously used Electronic Clearing Service (ECS) system.

About NACH

NPCI

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NACH was introduced by the National Payments Corporation of India (NPCI) to make clearing services faster and more efficient by merging all the ECS systems into one cohesive and well-connected unit. Today, it’s used by the majority of banks, financial institutions and the government itself.

NACH comes in two variants, which are ECS Debit and ECS Credit. Although there are four types of electronic clearance services- NACH, Local ECS, Regional ECS, and National ECS.

What are the features of NACH?

The following are some of the salient features of NACH:

  • NACH system covers all the core banking-enabled branches across India thereby removing the geographical barriers that hindered the clearance process earlier.
  • The NPCI has provided a framework under NACH that comprises of a single set of rules and regulations that are followed by all the users, financial institutions, and other participants. Apart from bringing simplicity in the system, it also helps support financial inclusion.
  • Thanks to the Aadhaar Payment Bridge (APB) system of NACH, the government is able to facilitate the Direct Benefit Transfers (DBT) for all kinds of social welfare schemes subsidies easily and securely.
  • NACH also allows banks to create their own banking products and provides many useful services like Dispute Management System (DMS) and Mandate Management System (MMS).

Why is NACH better than ECS?

The following are some of the main reasons why NACH surpasses ECS:

    • Due to its manual nature, ECS is time and labor-intensive. However, NACH is more organized and largely automated which helps save time.
    • Clearance of payments under the ECS system would take as many as 3-4 days. However, under NACH most payments are cleared on the same day.
    • NACH has a dedicated dispute management system to resolve relevant issues. However, there was no such provision under the ECS system.
    • The registration period for NACS is 15 days. For the ECS, it was 30 days.