Cos take the easy route for payouts, ECS grows 840%

MUMBAI: Dividend and interest warrants are almost disappearing. Corporates are moving toward an eco-friendly method of crediting customers��� bank accounts directly through electronic clearing service (ECS), which has grown around 840% in FY 2008. Also, bank customers are increasingly using the internet to transfer funds.

In addition to being eco-friendly, these paperless transactions are cost-efficient too. The Reserve Bank of India (RBI) does not charge banks for opting for its electronic settlements platform for settling these transactions. As a result, retail electronic settlements that were used extensively by card companies initially, are now increasingly being used by corporates, banks and retail clients.

Both variants of ECS, credit ��� used for transferring salary and pension payments ��� and debit ��� used for collection of bills, insurance premia and equated monthly installments (EMIs) ��� are increasingly becoming popular. ECS is now available at all scheduled commercial bank branches in 70 centres across the country.

The volume of total retail electronic transactions ��� which includes ECS, electronic fund transfer, and credit and debit card settlements ��� increased by 41.4% in FY08 against 32.9% growth in the previous fiscal. Similarly, transactions in value terms increased almost 342%, mainly on account of a large increase in transactions through ECS credit.

FY 08 was, however, an unusual year for ECS as the facility for ECS-credit was largely used for refund of IPO (initial public offerings) money. The year saw one of the highest IPO offerings by blue-chip companies such as Reliance Power and Rural Electrification Corporation. These were oversubscribed several times, as a result of which substantial refunds had to be made.

The volumes under ECS-debit, mostly used for payment of utility bills and regular premia, increased by 69% and value by 92.3% in FY08. Despite the recent increase in the volumes and value of retail electronic payments, the full potential of this mode of payments has not been realised.

For a seamless electronic transaction between two parties, their respective bank branches need to be connected. However, by the end of FY08 only 67% of branches were connected through the core banking solution (CBS) of their banks.

CBS provides interconnectivity between a bank���s branches throughout the country and enables anywhere banking facility to the customer.