What is NECS and why is it required?

Ans; NECS stands for National Electronic Clearing Service. It is

an inititative launched by Reserve Bank of India, as an
improvement over the ECS –Electronic Clearing Service, currently
in vogue.

ECS was launched more than two decades back, and the growth
has been extraordinary.
Both the ECS Credits and Debit Products have delivered their
mandates.

The major drawback of the ECS is that the Sponsor Institution

has to submit the Processing Files to each Clearing House
separately and also reconcile the entries Clearing House wise.

Presently, ECS system functions in a decentralized manner

requiring users to prepare separate set of ECS data centre-wise.
Users are required to have tie-up with local sponsor banks for
presenting ECS file to each ECS Centre.

There is no mechanism for the Sponsor Institution to centrally

submit the Processing Files or to receive the Return Files. This
was hampering the growth of ECS and the transactions were at a
stagnant level.

To overcome the drawbacks associated with ECS, Reserve Bank

of India, decided to launch the NECS
NECS was launched on 29th September 2008 by Shri
V.Leeladhar, Deputy Governor, Reserve Bank of India. He
inaugurated the National Electronic Clearing Service (NECS) at a
function at the Reserve Bank's National Clearing Centre (NCC),
Mumbai.

The service aims to centralize the Electronic Clearing Service

(ECS) operation and bring in uniformity and efficiency to the
system.

NECS (Credit) would facilitate multiple credits to beneficiary

accounts destination branch at participating centre against a
single debit of the account of a user with the sponsor bank.

NECS (Debit) would facilitate multiple debits to destination

account holders against single credit to user account.

The system has a pan-India characteristic leveraging on Core

Banking Solutions (CBS) of member banks. This would facilitate
all CBS bank branches to participate in the system, irrespective
of their locations.

In the new set-up, users have to prepare one consolidated NECS

file and submit it centrally to the NCC, Nariman Point, Mumbai,
through their sponsor banks. The sponsor banks would make use
of the web-server provided for the purpose. The web-server also
has the facility to get on-line data validation so that error free
data could be uploaded for processing.

The files can be uploaded up to the cut-off time one day prior to
the settlement day by sponsor banks thus bringing down further
the lead time required for processing. The returns also would get
processed on the settlement day itself thus on the third day the
users would have the status of the transactions.

As on date 26,000+ bank branches are participating in NECS

operations and other bank branches are expected to join in
course of time.

In the first phase, the NECS (Credit) was introduced. In May

2009, more than 2 million transactions were executed through
NECS (Credit). Given the benefits offered by NECS, the need
for local-ECS at various locations becomes redundant.
Accordingly, local-ECS-Credit at Mumbai has been merged with
NECS-Credit.

The NECS (Debit) would be introduced subsequently, based on

the experience and feedback received from member banks.

As the process flow for NECS (Debit) is different from NECS

(Credit), i.e. Validation of Mandates is required for a NECS
(Debit) Transaction, the NECS (Debit), was not launched in the
first phase.

As Banks have seen the benefits accruing from a NECS (Credits),

they have requested Reserve Bank of India, to introduce NECS
(Debit) too.

Accordingly Reserve Bank of India vide its letter RBI/2008-

09/509 DPSS (CO) EPPD No.2283 / 04.01.04 / 2008-2009 dated
June 25, 2009, addressed to The Chairman and Managing
Director / Chief Executive Officer of all banks participating in
NECS, advised Banks to prepare themselves and also the
respective NECS Participants to prepare themselves for the
NECS(Debit) Variant too.

The Reserve Bank of India, letter can be accessed at

http://www.rbi.org.in/scripts/NotificationUser.aspx?
Id=5052&Mode=0

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