Finance ministry asks bank, insurance & market regulators to issue notifications
In what could do away with the need for physical documents to avail of financial and government services, the law ministry has approved fulfillment of know-your-customer (KYC) norms electronically, through Aadhaar or the unique identification number.
The finance ministry has written to the Reserve Bank of India (RBI), as well as other regulators such as the Securities and Exchange Board of India (Sebi), to issue directives for financial companies to start accepting e-KYC.
In July, Business Standard had reported there was division on whether e-KYC was allowed under current laws and, therefore, the matter was referred to the law ministry.
On condition of anonymity, a government official said the ministry felt since the Information Technology Act considered electronic documents on a par with physical ones, e-KYC was valid. “The finance ministry has sent a letter to RBI and other regulators such as Irda (Insurance Regulatory and Development Authority) and Sebi so that a notification can be issued, after which banks and other financial companies can start using e-KYC,” the official said.
He added the letter was sent “a couple of weeks ago”. The use of e-KYC would not only hasten linkage of bank accounts with Aadhaar for the Direct Benefits Transfer programme, it would also save banks the huge cost incurred in document verification and storage, the official said.
Once e-KYC is implemented, one can open a bank account or get a new insurance policy by providing his/her Aadhaar number and authenticating his/her biometrics. The servers of banks or other financial companies, which would be connected with the UIDAI (Unique Identification Authority of India) server, would check if the details provided by the person are correct. After a customer gives his/her consent, the data drawn from the UIDAI servers for authentication could also be digitally stored by the bank for reference.
The service could also be used to avail of other government services that need authentication.
RBI has already notified Aadhaar number are valid proof of address and identity. So far, UIDAI has issued Aadhaar numbers to 392 million people. By next year, it plans to issue these to 600 million.
While bankers admit e-KYC would help reduce costs, some have raised concerns on the security front and are apprehensive on the use of a new and untested technology. However, those favouring e-KYC argue it is a fool-proof system of establishing identity compared to paper records, which can easily be forged.
“I have not seen the directive yet. But the finance ministry and the RBI must have examined it and it should be a foolproof system,” said executive director of Mumbai-based public sector bank.
Another banker agreed banks might not face any discomfort in implementing e-KYC because Aadhaar number is issued after a proper biometric identification.
“There should not be any security risks. It will bring down costs for banks and help in faster implementation of the DBT scheme,” he said. Both of them did not wish to be identified, as they had not yet received the directive from RBI.