NPCI extends ‘LON’ NACH Credit product to all DBT Schemes

NPCI-NACH Division vide its Circular No 16 dt. July 16, 2018 rolled out a new NACH Credit product named LON.

The primary goal of LON is to enable destination banks to identify Interest subsidy pay-outs via DBT mode.

Department of Higher Education, Government of India offers subsidies to eligible education loans availed from banks. 

To ensure quick and error-free credits of interest subsidies to eligible education loans, NACH is the chosen mode.

NPCI has advised banks to make arrangements to credit the Loan Accounts only, without routing through intermediate accounts. Hence the identifier LON is part of the inward file itself.

Basis this identifier, destination banks can design an appropriate process flow at their end.

The respective Loan Account Number is part of the transaction file sent by NPCI.   This ensures destination bank does not face any challenges to credit the subsidy amounts.

In the first phase the LON credits are of “Central Sector Interest Subsidy Scheme, 2009 on Model Education Loan Scheme of IBA”

Under the above Scheme Interest Subsidy is given during the moratorium period i.e., Course period plus one year on Education Loan taken from the Scheduled Banks under the Model Education Loan Scheme of Indian Banks Association to students belonging to economically weaker sections whose annual parental income is up to Rs. 4.5 Lakh from all sources.

This one-time subsidy is for undergoing recognised Professional/ Technical courses in recognized Institutions in India.

           The Nodal Bank is Canara Bank, Bengaluru. The operating guidelines in consultation with Canara Bank, the Nodal Bank is finalized.

Buoyed by the success of this new product, NPCI and DBT are rolling out this product to all credits from DBT.

NPCI-NACH Team vide its Circular No 22dt. January 24^th 2020 addressed to all participating NACH Banks informed the rollout to all DBT Credits immediately.

DBT vide Cir.No.58 dt.12^th March, 2015 has advised all participating   ministries not to insist the respective beneficiaries to open multiple bank account and to route all DBT credits to one beneficiary bank account only. This circular reduces the recon issues at the beneficiary end.

The latest NPCI circular ensures that all the DBT credits are routed through one mode only i.e NACH Credit mode and no other mode.

In the long run, this will ease reconciliation issues of beneficiaries and also encourage beneficiaries to maintain minimal bank accounts.

As the DBT data builds up, frauds can be reduced through Data Analytics and leakage plugged.

The DBT credits Bank Accounts or respective Loan Accounts based on the underlying scheme. The key identifier is the IFS Code.

Hence, the beneficiary needs to provide the correct IFS Code. Providing a wrong IFS Code will cause havoc at all ends i.e Sponsor Bank, Destination Bank,  beneficiary, Disbursing ministry.