[ECS or Electronic Clearing Service is used to automatically remove money or put money into a bank account, with a mandate given by the customer. ECS Debit is used to avoid having to manually pay every bill; money will automatically be taken from your bank account]

This reader had used ECS for making payment for gas, electricity, telephone bills. It was very convenient till his house went for reconstruction. He sent a letter to Mahanagar Gas, Reliance energy etc. saying I do not wish to make payments for these services now so please stop debiting the account. However he did not send a copy of this letter to the bank. Both Mahanagar Gas and Reliance Energy were happily debiting his account without giving him any service! This was inspite of the fact that the society had written a letter to both the service providers.

However when he went to the bank, the bank said “ECS is something which we cannot stop, you will have to go to the service providers”. Funny you thought you could decide whether anybody could debit your bank account, did you? Welcome to banking 101!

A recent twitter exchange with @RavikiranRao also brought this to the forefront:

RavikiranRao @deepakshenoy Kotak life refuses to cancel the ECS instruction which deducts premium every month from my bank a/c 11:44 AM Mar 26th

RavikiranRao @deepakshenoy This despite the fact that it is 3+years since policy started and they have an automatic cover maintenance feature. 11:43 AM Mar 26th

RavikiranRao @deepakshenoy Are they allowed to do that? 11:44 AM Mar 26th

DeepakShenoy @RavikiranRao Send formal letter to bank @icicibank_care can you help? ICICI asks for NOC for stopping ECS, RBI has said not necessary. 5:21 PM Mar 26th

RavikiranRao @deepakshenoy ICICI told me that they need Kotak's NOC to stop the ECS. 5:22 PM Mar 26th

While this is frustrating for Ravikiran, let me note:

Both ICICI and Kotak are going against RBI directives.

There is simply no reason for a) Kotak to deny an ECS mandate cancellation, b) ICICI Bank to ask for a No Objection Certificate (NOC) from Kotak to stop the ECS.

Kotak’s behaviour is repugnant and ICICI’s, even more so, because they are a bank and supposed to honour customer overrides. RBI, as long back as 2005, has said this explicitly:

December 23, 2005

To the Chairmen / Chief Executive Officers of all the Scheduled Commercial Banks

ECS (Debit Clearing) – Revocation of mandate by the customers

The volume of ECS transactions – both in Debit Clearing and Credit Clearing – has been growing rapidly. The growth rate of Debit Clearing transactions is much larger than the Credit Clearing and many utility companies have evinced a lot of interest in utilising the system for collection of utility bills. However, as understood from utility companies, certain procedural rigidities on the part of the bank branches have been hampering the growth of ECS in a big way. Several instances have been brought to our notice where bank branches are showing reluctance in accepting customers’ request to withdraw the ECS mandate given earlier to the user institution and the bank. Bank branches have been insisting on the withdrawal instructions to be routed through the user institution.

2. You would appreciate that customer should be in a position to exercise choice to withdraw from service in a user friendly way. The withdrawal instructions of a customer need to be treated equivalent to a ‘stop payment’ instruction in cheque clearing system. The customer can simultaneously send an instruction to the ‘user institution’ so that user institution stops including the transaction in the ECS file. Thus, for action on the withdrawal instruction by the bank branches, it is not necessary for the bank branch to obtain a confirmation from the user institution. The user institution is not supposed to include transaction in the ECS file on receipt of withdrawal notice and for any reason, if the transaction gets included in the ECS file, it may be dealt in a way ‘stop payment’ instructions are handled in the cheque clearing mechanism.

3. As far as the user institution is concerned, it is obligatory on the part of the user institution not to include the transaction in the ECS input file provided withdrawal instruction is received 15 days prior to the date of submission of ECS file to the ECS clearing mechanism. Bank branches may take up the matter with utility organisations, if they observe that transactions are included in the ECS file repeatedly even after the withdrawal instruction. A complaint can also be lodged with the Clearing House if the user institution keeps including the ECS transaction even after being pointed out by a bank branch.

4. In view of the above, you are requested to advise all your branches accordingly and advise us of the action taken in this regard.

So we have the right rules and notifications in place. But do we have the enforcement? The complaint mechanism is tedious but usually effective – first, connect to the bank’s complaint cell. If not satisfied go to banking ombudsman. And then there are appeals and the court process, but usually things should get sorted out at the ombudsman level.

I hope Ravikiran’s problem will get sorted out soon. It’s truly unfortunate that banks are being so customer-apathetic when it comes to ECS. I have never done an ECS debit registration, although it’s convenient, because I can’t trust any party to be fair to me, so I must have complete control over the payments. And because of idiotic statements they make on their mandate registration: Read http://theunknownindian.blogspot.com/2006/01/why-i-dont-sign-standing-instructions.html.

My only piece of advice: Do not sign ECS mandates. If you have already signed ‘em, withdraw now before it’s too late. If you prefer the convenience, be aware of the consequences.

Note: I believe banks don’t give housing loans without ECS mandates? I wonder how to solve THAT problem.

This post is written by Deepak Shenoy, at Capital Mind.

• You can invest 20,000 rupees now and get Rs. 40,000 in three years.
• How? You get a 100% bonus after three years in this policy
• You don’t need to pay any further premiums

Unlike his usual bakras, I asked him for a document, and he sends me the Kotak Smart Advantage Plan.

Point 3 was him bullshitting, of course. It turns out that you have to pay premium for three years, and they give you a 100% bonus. Nice? BUT, and there’s always a BUT, you have to stay with the fund for another 17 years before you can see the money. You can’t withdraw more than 10% of the fund value in any year, and if you choose to surrender the policy before the 8th year, you can see surrender charges from 5% to 1%.

And for the first year, guess how much of your money gets invested? 0. ZERO. Zilch. Not a single naya paisa.

The document says:

The first year premium contributes towards guaranteeing you with the Assured Addition Advantage and is not allocated to the investment funds.

Yay! 100% commissions!

Or, the whole 100% “bonus” is just a load of bull. They take your money for three years, “remove” the first years premium and give it back to you as a bonus. That’s utterly misleading – what is IRDA doing, sleeping?

And why the heck are these products being bought? Please, if you get a call from Kotak advisors pushing this product as a “bonus”, please tell them to take a walk.

Update: Also see Ripul Gupta’s post at MoneyRaam about this plan.

This post is written by Deepak Shenoy, at Capital Mind.