Banks move RBI for Aadhaar use as UIDAI bars fintechs

MUMBAI: Banks have asked the RBI to allow them to continue accepting physical Aadhaar as an ‘official valid document’, even as the Unique Identification Authority of India (UIDAI) has directed non-bank financial entities — including fintechs — to cease opening accounts using Aadhaar-based authentication. All these entities are also required to take up customer requests to delink Aadhaar from their database.

Last month, the Supreme Court — in a five-judge bench ruling on the validity of the Aadhaar Act — set aside the linking of the unique ID number to bank accounts and mobile numbers. However, it said that the government had given sufficient reasons to uphold Section 7 of Aadhaar Act, which deals with grant of subsidies and welfare benefits. To the extent that the public were recipients of welfare benefits, the government could insist on Aadhaar.

Highlighting the downside of not having Aadhaar-based authentication, the Indian Banks’ Association (IBA) said that the entire concept of microfinancing will be impacted if credit checks based on the unique ID number are removed. Also, banks may stop development of new initiatives such as face-authentication and use of data vaults. “Discontinuation of Aadhaar-based e-KYC will significantly impact the business model and the vision of government/RBI for setting up payments banks and small finance banks as this is the unique selling proposition and single most important differentiating factor from scheduled commercial banks,” the representation said.


The IBA has asked the regulator to restore the KYC guidelines to the pre-April 2018 position. In April this year, the RBI had made it mandatory to link every bank account with the holder’s Aadhaar number. This was in keeping with the revised anti-money laundering laws. Last month, the SC struck down the validity of the amendment to the anti-money laundering rules.

Until April, banks were accepting a copy of Aadhaar as an official valid document. They were also doing authentication of Aadhaar with the UIDAI database, after getting the consent of the customer. Banks were also retaining a copy of the Aadhaar card. “If the customer specifically requests for deletion of Aadhaar, it is proposed that the bank will delink the Aadhaar from the customer profile maintained in the bank’s database, provided an alternate official valid document is furnished. For the purpose of maintaining audit trail of Aadhaar (and related records), the documents/data trail will be retained,” the IBA said.

Bankers say that unlike other financial entities, they need access to Aadhaar authentication since a large section of the population avails direct-benefit transfer either for fuel or food. But fintechs can no longer use Aadhaar-based authentication and have been asked to draw up an action plan to exit the Aadhaar ecosystem.