Full Form of NACH

Updated on April 15, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

Full Form of NACH – National Automated Clearing House

The full form of NACH is the National Automated Clearing House. One can define the National Automated Clearing House as a secure, robust, and scalable online platform that facilitates inter-banking and high-volume transactions for financial institutions, banks, companies, and government bodies. It is really useful in clearing transactions that are bulky and repetitive.

Features of NACH

The National Automated Clearing House has two wings: NACH credit and NACH debit. The features of NACH credit and NACH debit are as follows:

NACH Features

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#1 – NACH Credit

  • NACH credit system has a dedicated online dispute management system.
  • The National Automated Clearing House credit system can perform ten million daily transactions.
  • NACH credit system is safe as well as secure for online access. The system even allows the users to download and upload documents with ease, and that too in real-time.
  • The National Automated Clearing House credit system gives corporate organizations direct access.
  • NACH credit system is closed every Sunday and on other holidays that RTGS follows.
  • NACH credit systems help organizations easily track their payments.

#2 – NACH Debit

  • NACH debit system has a dedicated online dispute management system.
  • The NACH debit system has a unique mandate reference number that allows users to track more than one payment easily.
  • NACH debit system ensures safe and secure transactions between an organization and its parties.
  • The NACH debit system ensures the security of the user’s single confidential data.

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Objectives

The objectives of NACH are as follows:

  • The NACH system creates a strong MMS or Mandate Management System and governance mechanism.
  • NACH aims to provide a few government units, corporate organizations, and other profound client foundations a DCA or Direct Corporate Access to National Payment Corporation of India NPCI National Automated Cleaning House (NACH) framework.
  • The NACH system aims to create a national economic framework covering all the banking institutions across the country for managing, handling, promoting, and processing online payment requests.
  • NACH system aims to provide a technical platform for all banking institutions to route their debit and credit instructions through the National Payment Corporation of India by allowing multiple routing codes like IFSC, MICR, and IIN.
  • The National Automated Clearing House system also aims to provide and establish a profound system of settlement of profits, rejects, discounts, debits, credits, refunds, reversals, inversions, denials, dispute handling, etc.
  • NACH system aims at maintaining a robust mapper of Aadhaar card numbers to IIN or Institution Identification Number concerning government mechanism.
  • NACH system even aims to devise a system with all India coverage to process all sorts of online payment instructions.

How does NACH Work?

The process of how NACH or National Automated Clearing House works is as follows:

  • Step #1 – The agency or corporate responsibility for collecting money collects the National Automated Clearing House mandate form from the customers. Upon submitting the NACH mandate form, the customers give the money collecting agency the authority to debit their accounts for a particular period and at certain intervals.
  • Step #2 – The money collecting agency or the corporate then verifies all the details provided by the customers in their NACH mandate forms.
  • Step #3 – Once the details are verified, the money collecting agency forwards the National Automated Clearing House mandate to the National Payment Corporation of India (NPCI).
  • Step #4 – The money collecting agency’s bank then shares the National Automated Clearing House mandate with the National Payment Corporation of India.
  • Step #5 – Once the information is validated, the National Payment Corporation of India forwards the mandate to the customer’s bank for approval.
  • Step #6 – Only forwards the fully validated transactions to the customer’s bank for debiting purposes.
  • Step #7 – The corporate will be authorized to collect the funds from its customer’s bank account as soon as its bank approves the transactions.

Difference Between NACH and ECS

The differences between NACH and ECS are as follows-

  • NACH is a defined process, which is why it helps the users save much of their time, whereas ECS is time-consuming since it is a manual process.
  • ECS involves more paperwork as compared to NACH.
  • The rejection ratio is lower in NACH as compared to ECS.
  • ECS registrations can take up to thirty days, whereas NACH registrations only take fifteen days.
  • In ECS, payments are settled within three to four days, whereas in NACH, payments settle on the same day.
  • ECS does not provide a unique MRR number. On the other hand, NACH provides a unique MRR number that one can easily use for future reference.

Benefits

The benefits of NACH for banks, customers, and organizations are as follows:

#1 – For Banks

  • Processing of SWIFT transactions in real-time.
  • The National Automated Clearing House system enables the banks to enhance their customer service, smoothens the process of payments, and even builds strong relationships with affiliated organizations.
  • Fewer errors and a super-fast workflow.

#2 – For Customers

  • Involves zero manual processes.
  • User-friendly process.
  • Super-fast process.
  • There is no need to remember the due dates for clearing payments such as phone bills, electricity bills, etc.
Full Form-of-NACH

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#3 – For an Organization

  • Ease in the clearance of bills.
  • Zero dependencies on checks and their clearance.
  • Enables timely clearance of salaries, dividends as well as pension payments.

Conclusion

National Automated Clearing House is a centralized online-based payment solution that enables the corporate sectors, banks, financial institutions, and government organizations to handle and manage bulk payments launched by NPCI or the National Payment Corporation of India in 2007. It also enables the financial institutions and corporate organizations to receive high volume payments comprising the loan amount, water bills, telephone bills, electricity bills, EMIs, and mutual funds payments received via the National Automated Clearing House or NACH solution.

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This article is a guide to the Full Form of NACH (National Automated Clearing House) and its definition. Here we discuss how NACH works, its features, objectives, benefits, and differences. You may refer to the following articles to learn more about finance: –

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