What is Mandate in Banking
In this article, we can understand What is Mandate in Banking. Everybody knows how to pay if a person wants to pay you in your daily life, the general method is to pay in cash, pay by check, or transfer to an account. But if a person wants to pay a certain amount in every month, it is always difficult to pay in cash, by check, or by transfer to an account. The bank has a mandate for such transactions.
What is a Mandate in Banking – If a certain amount is to be transferred from the account every month, then a mandate is given to the bank. Let us know exactly what this mandate is. A mandate is an order or permission given by an account holder to a bank to send or transfer a certain amount from his account to a certain place every month.
Let’s see What is Mandate in Banking is and where the mandate is used. The mandate is used to pay the loan installments, pay the insurance premium, pay the SIP of the mutual fund, or pay the installments of the recurring deposit. The mandate can be paid by the account holder for monthly payments or quarterly or yearly or half-yearly as per the customer’s choice.
What is Mandate in Banking and What is NACH Mandate?
NACH is a centralized payment system, introduced to integrate multiple electronic clearance service (ECS) structures. It forms the basis for the harmonization of standards and practices and for overcoming local barriers/obstructions in the manual payment process. The NACH Mandate provides a national footprint. It is estimated that this branch will be extended to all core banking permitted bank branches across the country, irrespective of location.
NPCI aims to provide a set of ground rules (operation and trade), open standards, and best practices in the industry for general online transactions for any participant, service providers, users, etc. This is done with the execution of e-NACH. The e-NACH system also provides government, government agencies, and financial inclusion through Aadhaar-based transactions. It provides an infrastructure for recurring payments of businesses in India.
The system of e-NACH contributes to the development of products of member banks. It addresses the special needs of banks and companies, including a polished mandate management system (MMS) and online dispute management system (DMS) with strong communication of knowledge and a customized management information system (MIS).
E-Mandate assists students with a secure and scalable platform with payment and file-based transaction processing capabilities. This is because recurring payments can be made through the NACH mandate, so students can use this mandate to pay EMIs for student loans, etc. It also offers the best security features, cost-effectiveness, and payment performance facility (using a straightforward processing mechanism) combined with nationwide multi-level data verification.
What is the use of the NACH mandate?
After understanding What is Mandate in Banking we learn about the use of the NACH mandate.NACH Mandate helps in the easy electronic payment process, as it uses a centralized framework in all banks in India.
Due to this framework, government departments or corporate offices can easily make bulk payments through this e-mandate.
It is useful as it has a structured control system, which helps in resolving issues related to settlement, payment disputes, etc. for online banking.
Collecting payments related to telephone, electricity, water, loans, mutual fund investments, insurance premiums, etc. to collect collective transactions.
NACH Mandate has 2 parts: NACH Credit and NACH Debit.
It helps in making huge payments in the bank account of many benefits.
It is useful for large corporations in the distribution of subsidies, dividends, interest, wages, and pensions.
Banks and financial institutions can use it to collect a large number of payments.
Loan or EMI can be collected automatically through its auto-debit facility.
NACH for the general public
NACH is a payment system for recurring payments like school fees or corporate payments, SIPs, mutual funds, etc. However, before the introduction of the NACH mandate, the Electronic Clearing Service or ECS was used for this purpose.
After recognizing the importance of the NACH mandate, the next essential question is why the NACH is needed if ECS already exists. You can understand this by comparison.
How does the NACH Mandate work?
NACH Mandate uses Aadhar Card or PAN Card to link e-NACH. Thus, the details of the loan, EMI, etc. are given in e-format along with a scan of documents for proof using Aadhar or PAN card number. In addition, paperwork was taken out of the system and customers’ documents were directly input into the system from government records, so there was no need for a separate verification process.
The working process of the NACH Mandate is as follows:
- The e-mandate form is provided to Party A, such as a customer, to enable them to make recurring payments to Party B, such as agencies collecting money.
- This form is submitted by Party A to Party B, where all the details of the loan, EMI, etc. are verified.
- After the verification is complete, Party B forwards the NACH Mandate to the Bank along with NPCI.
- After verification of e-Nach, Party A’s bank can make easy EMI payments through the auto-deduction process.
- With the Bank’s approval of Party A’s mandate, repeated payments can be made to Party B from Party A’s account.
- Party A can stop NACH at any point in time by simply submitting a Cancellation Form. However, not all banks and mutual fund companies allow cancellation.
Now to see how this works, let’s take an example of a school taking fees from a parent of a child:
- The company or agency that collects the money collects an e-mandate form from the school, customers, or, in our case, the child’s parents. With the NACH mandate, the parents of the child give a debiting authority or account to the corporate or school for a specified period and frequency.
- Now the corporate or school verifies the customer information in the NACH form.
- Thereafter, after verification of details, the school sends the NACH mandate to its bank.
- NPCI, after validating the information, forwards the NACH mandate to the bank of the child’s parent for approval.
- Only valid transactions are remitted to the parent’s bank for monetary debit.
- Once the parent’s bank approves the mandate, the school is allowed to receive funds at the discretion of the customer or parent.
You can understand What is Mandate in Banking by another example:
Suppose a person named Tejas has invested in a mutual fund and decides to invest Rs 10,000 per month.
- An alternative is that he enters the money manually, which is a cumbersome process as he needs to be physically present.
- He can also do ECS, which is a lengthy process and the processing may take up to 3-40 days. And if there are mistakes in the ECS form or missing documents, there is a high chance of getting rejected. Because of this people prefer virtual processes instead of manual ones.
- In this case, Tejas can benefit from using NACH Mandate as monthly deposits can be made through this process. In addition, its auto-debit feature can aid in monthly deposit fulfillment of recurring payments as payments are made automatically on fixed dates.
Hence, the tedious process, paucity of paper, and time-consuming process of ECS have been converted into a simple and easy mandate click.
Benefits of NACH
There are several benefits of the NACH mandate that need to be highlighted:
- It helps in the easy transfer of payments in India.
- Since the NACH mandate system is available across the country, same-day debit is possible.
- Its auto-debit feature helps in the payment of EMIs, taxes, bills, or any other recurring payment without making the payment manually.
- It has multi-layered security measures so that all your money is safe.
- Its nationwide reach also makes it cost-effective and allows corporates to conduct bulk transactions.
Cases in which NACH Mandate has been rejected
- If you enter wrong information like bank number, folio number, etc. the e-mandate application gets rejected.
- NACH is also rejected if the investor’s bank is not authorized by the NACH mandate.
Features of the e-NACH system
- Robust system with high volume processing capacity-
This means the e-NACH system is more robust and can handle high-volume transactions, and will not crash in high traffic.
- Cost-effective –
Since the system is spread across the country, the cost of the process is greatly reduced.
- Better Liquidity Management –
From a financial point of view, liquidity is the flow of money. Hence, with e-NACH, better liquidity or money management can be maintained as per the debt obligations.
- One-stop shot for push (credit) and pull (debit) transactions-
This is an outstanding feature of the system, as it gives users easy access to both credit and debit amounts in one place. There is no need to go to different places to make the whole process easy.
- Porting of Corporate NACH Mandate-
You can easily shift NACH Mandate from one bank to another, and it does not take much time.
- Automated Workflow (Host to Host Connectivity) –
All banks are connected through NPCI, hence communication is easy. This is the main reason why the process is much faster than ECS.
- Response to all transactions for better conciliation-
Since NACH has a dispute management system for complaint compliance, complaints are resolved in the shortest possible time.
- Large network of banks-
And finally, since almost all banks are connected to NACH, there is a huge network of banks where you can take advantage of this e-mandate.
NACH Steering Committee List
The following is a list of banking institutions that are members of the NACH mandate system in India:
- Bank of Baroda
- Bank of India
- Punjab National Bank
- State Bank of India
- Union Bank of India
- Axis Bank
- HDFC Bank
- ICICI Bank
- Kotak Mahindra Bank
- Yes Bank
- IDFC Bank
- Standard Chartered Bank
- Saraswat Coop Bank
- Paytm Payments Bank
- AM FI
In this article, we have evaluated the usefulness and functionalities of the NACH Mandate and explanation about What is Mandate in Banking and the 8 Best features of NACH. E-NACH and e-Mandate help in making frequent payments, for example, telephone charges, insurance premiums, utility bills, SIPs, educational charges, etc., thereby making the payment process easier for merchants and buyers.
For example, you can make your premium payments online instead of making manual payments. The best aspect of this mandate is that you do not need to remember to pay your EMIs, loans, etc., as its auto-debit features help in automatic money transfer. It has also made bulk payments easier and importantly, safer. So, no more worrying about untimely payments or late fees!
Frequently asked question
All new mandate requests must contain the details of the new sponsor bank.
What are the documents to be submitted for changing the sponsor bank in API e-mandate?
We (Corporate) are participating in the API e-mandate by joining NPCI, and my sponsor bank is blocked. What should I do?
A corporate organization must agree to a new sponsor bank and submit the onboarding document to NPCI to participate in the e-mandate platform. The sponsor bank should participate in both the variants of the e-mandate platform (please refer to our circular no. 37 dated December 06, 2018)
What are the application fees/charges for portability?
NPCI does not charge any fee for portability.
What are the documents required to be submitted to NPCI for portability implementation?
A corporate has to submit a request to NPCI through its new sponsor bank. The request should be duly certified by the new sponsor, wherein the authorized signatory signs on all the pages and the Bank's seal duly affixed - in the format provided in Annex-I.
Which new sponsor bank can take action once NACH is ported?
• The new sponsor bank can initiate the transaction of e-mandate registered with the old sponsor bank. However, modification or cancellation of such mandates will not be permitted. • The corporate organization may use a new sponsor bank to register or register the subsequent mandate from the customers to NPCI.
Corporate sponsor banks are currently blocked or disabled. Can corporate banks exercise the portability option?
Yes, Corporates can use the portability option even if their existing sponsor bank is blocked or disabled to map NACH to the new sponsor bank and initiate the transaction.
Can a corporation initiate a transaction with a sponsor bank that is not a part of mandate registration?
No, the Corporation cannot initiate regular transactions with any Sponsor Bank. This is possible only when the porting of corporate organizations maps the existing mandate to the new sponsor bank.
What is Mandate in Banking