What is National Automated Clearing House (NACH) in India?

The nation is now geared up for another NPCI mandate i.e. ACH or Automatic Clearing House. The primary motive of ACH is to handle low value, high-volume transactions based on electronic files. Ideally implementing this mandate will allow transactions to be cleared in real-time mode rather than batch mode. This paradigm shift to Real-time mode will be a milestone for the Payment landscape in the country and mirror global standards. The scope of ACH is set to cover 82,000+ Bank Branches spread all over India.

Automatic Clearing House (ACH) payment system was envisaged in the United States during the early 1970’s. It was a result of studies conducted by the Federal Reserve and also suggested by industry stalwarts that the increasing volume of paper checks used by businesses and consumers to pay their bills would eventually exceed the ability of the existing computer systems to process and sort the checks efficiently. Hence, the Automated Clearing House (ACH) payments system was designed to allow corporations and consumers to reduce or eliminate the use of paper checks to make routine payments. As for 2011, this network processed an estimated 20.2 billion ACH transactions with a total value of $33.91 trillion.

Automated Clearing House (ACH) system is better recognized as Electronic Clearing Service (ECS) in India. ECS is currently available in around 89 centers in the country. It is operated by the Reserve Bank of India (RBI) at 15 centers and by commercial banks at the remaining centers. With the introduction of NACH or National Electronic Clearing Service (NECS) by Reserve Bank of India, the reach of the system has been further deepened and all identified core banking branches of banks are to be included as part of the upgraded system.

The Proposal

NPCI proposes to build, implement and manage an Automated Clearing House (ACH) system with built-in security features and multiple level data validation facility accessible to all participants across the country. The new centralized ACH solution or NACH is expected to consolidate the current multiple ECS systems in due course of time and provide a framework for removal of local barriers /inhibitors and harmonization of standards and practices.

The NACH platform will have national footprint which will cover 82000+ bank branches. The platform will be robust, secure and scalable with both transaction and file based transaction processing capabilities. It will have best-in-class security features, cost efficiency & payment performance (STP) for all participants. The intention is to create fully automated processes with the use of open standards and best industry practices. This will prescribe a single set of rules (Operating and Business), practices and standards which are common across the country for all Participants, Service Providers, and Users etc.

The NACH platform will support financial inclusion measures initiated by banks, other financial institutions, Government etc. by providing support to UID and Mobile based ACH transactions. The proposed system will allow member banks to design their own products and help address specific needs of the corporate world, Government and retail customers.

Objectives of NACH:

• Leverage on distribution footprint and technology to provide a modern, robust platform to handle large volumes of repetitive payments
• Define and Manage Governance Process by way of a set of Operating Guidelines, practices and standards for all Participants, Service Providers and Users etc.
• Introduce a refined Mandate Management system and processes with defined and transparent SLAs.
• Provide Enhancements and Enrichments – additional data elements in the message formats, secured access, and user control.
• Facilitate Exceptions and Dispute management
• Support financial inclusion by providing support for Aadhaar based transaction