CIRCUIT BREAKER. Will Aadhaar lead to financial exclusion?

Dreaming about taking off from work this month for a family break and some Christmas shopping? Don’t forget to take a few extra days off to complete the chore that the Government has set you – linking all your financial instruments to your Aadhaar number.

We hear that the deadline may be extended but even then you will have to marry your Aadhaar number to all your bank accounts, demat accounts, mutual fund folios, life and general insurance policies, credit cards and post office account by March 31 next year.

Rule shift

But wait. Wasn’t Aadhaar supposed to be compulsory only for citizens availing themselves of welfare schemes funded from the Consolidated Fund of India? And isn’t the Supreme Court set to hear a bunch of petitions questioning its constitutional validity?

Unfortunately, though Aadhaar’s original intent was to enable targeted subsidy delivery, the Centre has since decided to use it as a sleuthing tool to track down black money. In June, it notified its new Prevention of Money Laundering (Maintenance of Records) Second Amendment Rules 2017. This required all financial firms to compulsorily collect Aadhaar and PAN details for Know-Your-Client requirements by December 31. If a client doesn’t possess an Aadhaar number, she must furnish proof that she has applied for one. Only those who are ‘not eligible’ to apply for Aadhaar are off the hook.

Following this notification, regulators such as the RBI, SEBI and IRDA have ‘advised’ financial market participants to proceed with Aadhaar-linking. This is why, lately, financial firms have been holding a gun to your head asking you to furnish your Aadhar. Accounts that remain unlinked by the deadline can be frozen.

Why the fuss

Setting aside concerns about Big Brother delving into their finances, ordinary savers face four practical problems in complying with the Aadhaar diktat.

Time-consuming : Aadhaar-PAN linking on IT returns was a two-step process, but linking Aadhaar to all of one’s financial savings entails well over a dozen steps. The process is time-consuming because key financial product providers and their regulators have not managed to create a centralised registry for investors.

So, if you take the simple example of a middle-class saver who operates two bank accounts, has two credit cards, one demat account and six mutual fund schemes, two insurance policies and Public Provident Fund, that’s 12 different entities he’s got to liaise with. Banks and insurers require you to individually link every account or policy you own. Mutual funds require each folio to be Aadhaar-linked and this requires you to approach four different registrars.

True, as all of them offer digital modes (net banking, online, SMS), each linking may only take a few minutes of your time, if everything works well. But the problem is that it often doesn’t.

Digital divide : Using the online mode for Aadhaar-linking requires familiarity with digital banking, a robust internet connection and uninterrupted phone/email access. This poses severe problems for senior citizens and the poor who lack digital access. Even digitally savvy folk often find their attempts stymied by name/address mismatches between their investment accounts and the Aadhaar database.

Given the time and effort all this entails, financial investors are quite justified in asking why they must jump through so many hoops to hand over their tax-paid money to a third party. After all, for many years now, Indian financial firms have on-boarded investors only after elaborate KYC procedures requiring multiple documents — identity and address proof, PAN and even in-person verification. They also submit truckloads of data to the taxman on high-value transactions and TDS deductions.

So, by requiring Aadhaar-linking now, is the Centre admitting that the tax department hasn’t really used all this data to pin down money-launderers? If so, can we have assurance that Aadhaar will succeed where PAN and KYC rules have failed?

Security risks : The Aadhar Act 2016 takes a very serious view of misuse of collected data or the breach of confidentiality. The UIDAI is prohibited from sharing your biometric or demographic details with anyone, except under Court orders or national security considerations. Entities that collect Aadhaar are required to inform you of the purpose, use it only for verification and refrain from storing or disseminating it. The Act specifies 3 years’ imprisonment and fines for any breach.

But while the statute appears fool-proof, enforcing it is the uphill task. For instance, many financial firms have rolled out a paper mode for digitally-challenged customers to apply for linking. These documents may be handled by a wide variety of employees at these firms, subjecting the data to leakages and misuse.

Then there are cyber scamsters. Lately, email accounts are being bombarded by Aadhaar-linking tips from dubious ‘service-providers’. LIC had to warn its policyholders that it had not rolled out any SMS mode for Aadhar linking, though such a link was doing brisk rounds.

Security concerns could have been allayed, if regulators had enabled Aadhaar-linking through a centralised portal, instead of requiring investors to deal with dozens of private entities.

Biometric failures : Many Indian savers, despite being quite willing to enrol for Aadhaar find themselves unable to do so because their biometrics fail to read at the Aadhaar touchpoints.

Folk beyond the age 50 complain of enrolments being rejected because their fingerprints have faded with age. Iris scanners are not widely available, and are known to trip up too. Biometric failures also foil attempts by the disabled or those engaged in physical labour from securing Aadhaar. The UIDAI dashboard reveals that, on a random recent day, its pan-India enrolment network rejected 1 application for every 7 that it accepted.

For savers with biometric challenges, Aadhaar-linking causes anxiety not only at the time of opening an account, but also at the time of every subsequent authentication. Such savers may literally live in daily fear of losing control of their legitimate financial assets. It is only humane that they be allowed to provide alternative documentation, in place of Aadhaar, to prove their identity.

The NDA regime has achieved phenomenal success with financial inclusion, mainly because it has simplified the on-boarding process for aam aadmis seeking to open bank accounts. It would be an irony indeed if the Aadhaar, which has been so effectively used as an instrument of inclusion, now turns into an instrument for financial exclusion of Indian savers.

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