In the digital lending ecosystem, NACH (National Automated Clearing House) is the most widely used mode for EMI collection. As per NPCI (National Payments Corporation of India), the most preferred mode of repayment is NACH. Repayment collection statistics is as follows –
| Mode | Estimated Range of Collection |
| NACH (e-Mandates) | 50% – 65% |
| UPI (via app or link) | 10% – 20% |
| Cards | 5% – 10% |
| Others (Net-banking/ Cheques/ Wallets / Cash) | 5% – 35% |
Despite this, NACH is not a watertight mode of collections when it comes to lenders. Yes, E-NACH has smoothen the process of onboarding and ensures the intent of the borrower is secured. However, in practice, reliance on NACH exposes lenders with specific vulnerabilities. From registration to collections a set of challenges emerge. As a seasoned lending professional, I have listed a few persistent pain points in the NACH current running design:
1️⃣ CC/OD Accounts – In or Out?
As per Transunion summary for Feb’25, market share of lending parties looks this way –
~50% market share comes from commercial lending who is using CC/ OD accounts on a regular basis. Hence, inclusion of CC/ OD accounts for NACH registration is not a choice but a mandate. However, ambiguity remains. CC/ OD accounts are at times accepted and mostly denied by bankers when it comes to NACH registration. Lenders are still unsure whether they are part of the NACH mandate flow. The system treats their inclusion more like a fantasy of banks than a necessity for the complete ecosystem.
2️⃣ Bounce Memo = 10-Day Wait
Banked a NACH and it bounced? Now, what will be the logical next step for lenders?
They would want to initiate legal action against the borrower. Well, with cheques, you may initiate it the same day as the return memo and physical cheque is available with the lender to initiate the legal proceedings.
However, with NACH, return memos are phygital. Gathering a bounce memo post a repayment bounce for a cheque and NACH is compared below –
| Cheque Bounce | NACH bounce |
| Process Lenders to raise a request with their banker to share the bounce memo along with cheque presented.Lenders may collect the cheque and bounce memo from the branchLenders’ RM can also share the same over email while physical collection can happen later | Process Lenders reach out to their NACH partners to share bounce memo. NACH partner to connect with borrower’s bank for bounce memoBorrower’s bank share the details within specified TAT of 10 days NACH partner shares the same with lender over email / portal |
| TAT – Max 1 day | TAT – 10 days |
| Process – Physical | Process – Phygital |
This delay and additional follow-ups are serving none. Digital bounce memos are still not accepted by Indian court system.
3️⃣ Legal Action ≠ Cheque Bounce
Despite being a pre-authorized payment mode, NACH bounce doesn’t carry the same legal weight as a cheque bounce under Sec 138. Many lenders are still forced to collect cheques (postdated cheques or undated cheques) just to ensure enforceability.
| Cheque Bounce = Section 138, Negotiable Instruments Act If a borrower issues a cheque that bounces due to insufficient funds or stop payment, the lender can take criminal action under Section 138. ✅ Jail term up to 2 years ✅ Monetary fine ✅ Creates strong legal pressure to repay | NACH Bounce = No Equivalent Legal Protection A bounced NACH mandate is not treated at par with a dishonoured cheque in Indian courts. ❌ No direct legal action under Sec 138 ❌ No criminal proceedings ❌ Borrower can cancel mandate silently—no bounce memo, no trail |
Postdated/ Undated cheques are neither a safe thing for borrowers nor for lenders. It can be misused by lenders in case of any default or a fraud incident at lenders’ end. Similarly, lenders are required to maintain safe custody of these cheques.
4️⃣ Silent Cancellations
Borrowers can cancel their NACH anytime, and it leaves no trace—no bounce, no alert. Unlike cheques, where a return clearly shows intent, NACH exits quietly, leaving lenders exposed.
Until NACH is presented by a lender and return feed says – NACH cancelled, lenders have no way to know the NACH status. Which means, should lenders keep presenting NACH for smaller values for their high-risk customers? This will be a burden on the entire eco-system and will also lead to customer dissatisfaction.
Also, if a borrower has cancelled the NACH, they may not cooperate to register it once again. What options are lenders left with, then?
Conclusion:
Digital collection has added immense value to lending eco-system. Hence, they became the life blood of the system. However, what worked yesterday will not work forever until it is tweaked basis current needs.
It is time to review the existing model and make necessary changes. NPCI did take inputs in the past, but there is no news of change in policies yet. While NPCI is keeping borrowers’ interest in mind, lenders’ right to collect cannot be ignored.
If NACH is the backbone, it surely deserves a spinal upgrade.
