With Aadhaar nixed, banks seek new KYC norms

The Indian Banks Association (IBA), the industry body representing banks and financial institutions, has written to the Reserve Bank of India (RBI) seeking revised KYC (know your customer) guidelines following the recent Supreme Court verdict on Aadhaar. The banks are worried about the impact on business due to the lack of clarity following the ruling.

In a letter dated October 10, seen by BusinessLine , the IBA said the Supreme Court order has far-reaching implications for the industry and for banking operations. For example, the IBA’s letter pointed out, Rule 9 of the Prevention of Money Laundering Rules mandates linking of Aadhaar number with bank accounts, has been struck down, but the RBI’s 2013 circular mentions Aadhaar among the list of documents acceptable as proof of identity.

One other concern for the IBA relates to the direct benefit transfer (DBT) scheme. It said that deleting Aadhaar from the database will impact DBT, and that proper guidelines should be issued in consultation with the National Payments Corporation of India, the nodal agency for all payment networks. “If the customer specifically requests for deletion of Aadhar, it is proposed that the Bank will delink the Aadhar from the customer’s profile...consequently disbursal of benefits by the government agencies under DBT scheme into designated bank accounts may be impacted,” the letter stated.

The IBA said there is a need for the RBI to clarify the status and that the earlier law should prevail. Doing away with the Aadhaar requirement may have a significant impact on the Government’s financial inclusion and digital initiatives such as BHIM, Aadhaar-enabled Payment System and e-KYC based products, among others, which are primariry based on Aadhaar-enabled platforms, the association said. “Banks may be allowed to continue these services till revised guidelines are announced,” the IBA said.

“We need a clear direction so that there is uniformity in the procedures adopted by all the banks,” said a senior banker on condition of anonymity.

Experts say that banks and several fintech firms have depended wholly on Aadhaar-based e-KYC and are reworking their business strategies. Going back to the earlier mode of doing KYC physically with paper documents was not viable option, they said.

The apex court had in its September 26 ruling barred private companies, fintech firms, telecom operators and banks from asking for Aadhaar as an identification document from their customers, and stated that Aadhaar is not mandatory for opening bank accounts.

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