DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : Raja Sekhar Koduru
Designation : lecturer in ccp
Branch : Commercial & Computer Practice
Institute : Govt. Polytechnic for Women,
Kakinada, e.g. district
Year/semester : 3rd Year – VI Semster
Subject : Banking - II
Subject code : ccp-604(b)
Topic : Customer services offered by
Bank
Duration : 50 mts.
Sub topic : Electronic fund transfer
Teaching aids : Power point & pictures
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Recap
 In the previous session we have discussed about the
EFT and steps involved in the EFT system.
 The Electronic funds Transfer system was introduced by
the RBI in the year 1995 to make the ..
 Payment system very fast
 Minimize the paper work
 For automatic reconciliation
 Works towards better customer service

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Objectives:
 On completion of this topic you will be able to

 Explain EFT – RBI Guidelines.

 Explain the Benefits of EFT and

 Explain the Electronic Clearing System

 List various types of ECS

 Explain new payment/cash management products for

bank customers.

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Structure:

 EFT – RBI Guidelines

 ECS

 Summary

 Quiz

 Assignment

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 Known to un known :

 Have you got any idea how banks provide services to

stronger their customers Electronically?

 ECS

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EFT – RBI Guide lines

 RBI has been making efforts attempting to fine-tune

the working of the EFT.

 The main features of EFT schemes are as below:

 ELECTRONIC MEDIA:

 The entire operation of the system between service

branch and RBI is perform through Electronic Media

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EFT – RBI Guide lines

 No physical movement of instruments from one center

to another is necessary.
 RBI-Net is being used for transmitting EFT messages.
2. FUNDS SETTLEMENT FACILITY
 RBI undertakes to provide inter-bank funds settlement
facility.
 This task is carried out by debiting the remitting bank
and crediting the destination bank.

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EFT – RBI Guide lines
3. REMITTANCE MESSAGES:
 RBI pools the remittance message from all banks at a
center and arrange to send them to designated
branches at destination centers.
 The flow of messages takes place between the branch
to service branch and then to NCC (National Clearing
Cell) and vice versa.

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EFT – RBI Guide lines

4. SERVICE PROVIDER:
 RBI has made that communication between branches
and service branches may be on paper format till
branch creates adequate computer communication
infrastructure.
 For this purpose, RBI acts as service provider as well
as system regulator.

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EFT – Benefits

 Following benefits emanate from the use

electronic fund transfer system:
 Efficient mode:
 The EFT is an efficient mode of funds transfer across
various banks.
 This enable banks to provide inter-bank TT
(Telegraphic Transfer) service.
 Further this technique makes reconciliation automatic.
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 EFT – Benefits

2. INNOVATIVE PRODUCTS:
 EFT system can be used as a launching pad with
which banks can introduce new payment or cash
manage products such as e-cheque for their
customers.
3. LESS WORK LOAD:
 The use of EFT system would significantly reduce the
number of outstation cheques issued by the customer.
 Consequently, service load on banks could be reduced
over a period of time.
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 Electronic clearing system (ECS)

 GENESIS:
 Under the new method of payment called ‘Electronic
Clearing System’ (ECS) the institutions having to make
a large number of payments
 --such as interest/dividend
 --can directly deposit the amount into the bank
accounts of the shareholders/depositors and investors.

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Electronic clearing system (ECS)

 There is no need to issue them paper instruments

such as warrants, demand drafts, cheques, bankers’
cheques etc.

 The scheme benefits all concerned.

 For example, corporate bodies need not print and

dispatch numerous paper instruments.

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Electronic clearing system (ECS)
 As far as the banks are concerned the new system
helps in reconciling figures automatically.
 The system will be highly beneficial to the clearing
system.
 There is no need deal with large number of paper
instruments.

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Electronic clearing system (Ecs)

 The ultimate beneficiaries will be the shareholders,

depositors, etc.

 They would get the credit directly into their bank

account on the due date.

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Electronic clearing system (ECS)

 PHYSICAL CLEARING SYSTEM

 Under the physical clearing system, bulk and repetitive

payments such as interest, dividend warrants etc. are

paper based.

 This involves printing of warrants in costly MICR

(Magnetic Ink Character Recognition).

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 Electronic clearing system (ECS)

 Dispatching MICR cheques by post and reconciliation

thereof after payment by the collecting banks is very
difficult.

 In addition the following major difficulties are

experience under the physical system of clearing:

1. Requirement of an expensive administrative

machinery for printing, dispatching and
reconciliation
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Electronic clearing system (ECS)

1. Operational bottlenecks resulting from bunching of a

large number of instruments in clearing, with
consequent pressures on the cheque processing
system.

2. Danger of loss of instruments in transit and their

fraudulent encashment.

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Electronic clearing system (ECS)

1. Botheration on the part of the customer to keep track

of the receipt of the instrument and deposit of the
same in the bank.

2. Monotonous and error-prone nature of the processing

work involved in such large volume of instruments.

3. Undue strain on the cheque clearing system.

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Electronic clearing system (ECS)

 THERE ARE 2 TYPES OF ECS

1. ECS (CREDIT) AND

2. ECS (DEBIT)

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Electronic clearing system (ECS)
 ECS (CREDIT)
 ECS, as used with respect to credit clearing, refers to
a system of payment undertaken by banks, financial
institutions and others whereby direct deposit of a
large number of payments such as interest, dividend
warrants into the bank accounts of the shareholders,
depositors, investors and others is facilitated without
having to issue paper instruments.

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 Electronic clearing system (ECS)
 ECS (DEBIT)
 ECS, as used with respect to debit clearing, refers to a
system of collection of undertaken by public utility
services such as electricity, telephone, insurances etc.
with a view to effecting periodic and repetitive payment
by ‘Direct Debit’ to customer accounts.
 The object is to minimize paper transaction and
thereby increasing customer satisfaction.
 ECS (Debit) envisages large number of debits and one
credit.
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Electronic clearing system (ECS)

 OPERATION CYCLE -ECS (CREDIT)

1. PREPARING PAYMENT DATA –

 Payment data is prepared by the institution (called
“the user”), which has to make payments to a large
number of customers.
 The data is prepared on a magnetic media i.e. tape or
floppy and submitted to its banker, called ‘Sponsor
Bank’

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 Electronic clearing system (ECS)

2. PRESENTING PAYMENT DATA –

 The payment data is then presented by the sponsor
bank to the local bankers’ clearinghouse.
 Authorized by the sponsor bank, the manger of the
clearinghouse debits the sponsor bank’s account and
credit the destination accounts i.e. the accounts of the
banks where the beneficiaries of the transactions
maintain their accounts.

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 Electronic clearing system (ECS)

3. PROCESSING BY CLEARINGHOUSE –
 On the receipt of authorization the clearinghouse
process the data and works out an inter-bank funds
settlement.
 Branch-wise credit reports indicating the beneficiary
details such as the names of the branches where the
accounts are maintained..,

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Electronic clearing system (ECS)

 …the names of the beneficiaries, account type,

account numbers, and the respective amounts are also
furnished by the clearinghouse to service branches of
the destination banks.

4. SERVICE BRANCHES:
 The service branches then pass the advices to the
concerned branches of the bank, which will credit the
beneficiaries’ account on the appointed date.

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Summary

 The RBI has introduced Electronic Clearing System

from April, 1995.
 The main need of starting ECS to save precious time
and papers.
 The facility of ECS is very beneficial in payment
salaries, interest, dividend, pension etc.

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Summary

 This service plays an essential role in those

department where there are numerous transactions of
similar nature.

 Both ECS (Credit) and ECS (Debit) entries of

transactions are made under ECS system.

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Quiz
1) E C S stands for …………
Ans: Electronic Clearing System

2) What are the benefits of EFT

a) Efficient mode
b) Innovative products
c) Less work load
d) All the above

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Quiz
3) R B I has introduced ESC effect from … Month & Yr.

Ans: April 1995.

4) The main need for starting ESC to save … and …

Ans: Previous time, Papers.

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 Frequently Asked Questions

 Briefly explain the RBI guidelines for EFT system.

 Briefly explain the benefits of EFT system.

 What is ECS? Briefly explain.

 Briefly explain the ECS (Debit)

 Briefly explain the ECS (Credit)

 Explain the operation cycle of ECS (Credit)

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