If you have taken a loan and have opted for an EMI facility, chances are that you use an electronic clearing system (ECS) to ensure that your EMI payments are made on time each month. This service is provided by most banks and is quite useful when you need to electronically transfer funds from one bank account to another. 

The ECS facility comes in handy especially when you need to make periodic transactions electronically. It is often used while paying loan EMIs since you will not need a reminder every month to make timely payments. 

Although ECS has helped many in ensuring timely payments, it did result in some trouble since the onset of the Covid-19 pandemic. Since many individuals faced a cash crunch, the RBI offered a moratorium on loans. However, since the ECS facility is set on an automated mechanism, banks and lenders failed to make adjustments regarding moratorium and it caused ECS bounce in many cases. 

Here are a few important things that we need to note as far as the ECS facility is concerned and how it snatched the loan moratorium relief from many loan borrowers.

How ECS bounce affected loan moratorium relief?

ECS debit is something similar to a cheque issued by you. This is why you must ensure to have sufficient funds in your account. During the initial days of the Covid-19 pandemic, a lot of people were affected by the lack of funds due to a lack of income sources. Thus, the RBI granted a loan moratorium to offer relief to loan borrowers who were unable to make payments due to the unavailability of funds. 

While people began using moratorium relief, there was a gap between the ECS facility set up and the moratorium break. Lenders did very little to modify ECS set up and borrowers also ignored the impact of ECS bounce.

If an ECS bounces, users have to bear the fines that are similar to a bounced cheque case. This could be approximately Rs. 750 per instance. 

Banks run an ECS facility and if customers do not keep enough funds in the account, the bank will try to run an ECS again at a future date (mostly within a couple of days). If there are insufficient funds by that date and your ECS bounces, the banks will try a re-run once again and intimate you of the same. Thus, to avoid fees or late charges, it is important to coordinate with your bank while using an ECS and moratorium facility in parallel.

How does the ECS facility work?

ECS debit helps many loan borrowers who wish to avoid the pain of writing and submitting cheques, especially if the payments are recurring. It avoids the cumbersome task of paying EMIs and bills and helps switch to an autopilot mode. 

However, every user of ECS must monitor their savings accounts regularly to identify any inconsistencies between the actual payment to be made and the amount debited from the account. ECS must be used to ensure timely EMI and bill payments and to avoid late fees/charges. 

What are the types of ECS facilities that can be availed?

There are mainly two types of ECSs offered by most banks. These are ECS credit and ECS debit. 

• ECS Credit is used when an institution wants to make a credit to your savings account. Let’s taken an example. If your dividends or salary has to be sent across to your account, the organisation or sending institution will use the ECS credit facility.
• ECS debit is mainly used to make recurring payments such as EMI on loans or SIP payments for mutual fund investments. This helps to avoid writing cheques every month and reduces the chances of missing various payment due dates.

How to use the ECS facility?

Users have an option to determine the amount of ECS along with frequency. Banks also generally offer an option to set a maximum limit and the auto-debit amount can be as per the bill generated.

For example, if a user has set an ECS for credit card bill payment with a maximum limit of Rs 10,000 and the credit card’s total due amount for the month is Rs. 8,000, then the ECS will be Rs. 8,000. Users can also choose the minimum amount due to be paid through ECS. There is also an option of a fixed amount to be set for every ECS cycle.

Conclusion

While using an ECS facility can offer much relief, if it is used in parallel to a moratorium, users must ensure to notify banks about the possible clash between auto payments and break offered by a moratorium. This will help in avoiding any unwanted charges and disputes with the lending authority.

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