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Financial sector regulators, including the RBI, IRDAI and PFRDA will have to take a relook at their know-your-customer (KYC) architecture now that the Supreme Court has ruled that private entities cannot use Aadhaar information to authenticate the identity of a person.
Hours after the Supreme Court’s five-judge Constitution Bench headed by Chief Justice Dipak Misra struck down Section 57 of the Aadhaar Act, 2016, which allowed sharing of Aadhaar data with private entities, the regulatory bodies in the financial sector went back to the drawing board, analysing the legal implications.
Call for robust law
Besides upholding the constitutional validity of the Aadhaar scheme, the apex court on Wednesday also asked the Centre to bring a robust law for data protection as soon as possible. It also held that the Aadhaar Act, passed as a Money Bill, is valid.
Reacting to the judgment, Finance Minister Arun Jaitley said Aadhaar has helped the Centre save ₹90,000 crore annually with targeted delivery of government schemes.
While the ruling has many positives for the common man, more clarity is needed for banks and their customers on KYC norms. OTP-based e-KYC is seen to have helped millions of people access financial products over their mobile phones.
The Supreme Court ruled that Aadhaar is not mandatory for opening a bank account or getting a mobile connection. It is, however, mandatory for PAN and filing of income-tax returns. Aadhaar will also not be compulsory for school admissions, the apex court has said.
Given that regulators allowed the use of Aadhaar information for e-KYC by industry players, it is felt the latest judgment will have some dislocating effect on their operations. An RBI spokesperson said the central bank is awaiting the full judgment copy.
The RBI’s existing circulars and orders around KYC note that the central bank’s directions were subject to the Supreme Court’s final verdict on the Aadhaar case, the official said.
“The RBI will have to align itself to what the apex court has ruled. There is no option for the central bank,” the RBI spokesperson added.
RV Verma, former CMD of National Housing Bank as well as former PFRDA member, told BusinessLine that the emphasis on Aadhaar as a proof of identity for the financial sector will now see a rollback.
Unique Identification Authority of India CEO Ajay Bhushan Pandey said: “Aadhaar has come out winning as the champion of the empowerment of people, especially the marginalised sections of society and also as the key to the welfare scheme delivery of the government that has eradicated fakes, duplicates and middlemen.”
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