Controversy is still raging over the mandatory use of
Aadhaar, but an expert
committee on financial inclusion has already recommended that the
Reserve Bank of India should leverage the
Aadhaar network to ensure that every Indian has a
free bank account by January 2016. The recommendation has come from the Committee on Comprehensive
Financial Services for Small Business and Low-Income Households, which is headed by
Nachiket Mor, an
RBI board member and former
ICICI Bank executive.
RBI set up the committee last September and it has now sought comments from the public on the
draft recommendations on or before January 24, 2014. Other key members of the panel include former
Citigroup CEO
Vikram Pandit and
Axis Bank CMD Shikha Sharma.
According to the report, every Indian resident over 18 years of age should be automatically issued a “universal
electronic bank account at the time of receiving his/her
Aadhaar number.” One can choose his/her
preferred bank from the empanelled ones and need not pay any fee for opening an account. However, the bank can levy
transaction charges, the committee says. It also recommends setting up of a ‘unified’ redressal agency under the
finance ministry to deal with
customer complaints.
About 90% of small businesses have no links to a
financial institution and 60% of Indians do not have bank accounts, the report states. “Aadhaar is the key piece of infrastructure to enable a customer to be identified and authenticated so that repudiation and fraud risks are minimised and therefore, should become the universal basis for authentication,” it adds.
The panel has also suggested that a special type of
banks should be introduced to provide payment services and deposit products to small businesses and low-income households. Such banks could be categorised as
payments banks and “they will be restricted to holding a
maximum balance of Rs 50,000 per customer,” the report says. Even
existing lenders can set up these payments banks as
subsidiaries. The report also recommends setting up another category of wholesale banks that will provide funds to other banks and financial institutions that directly lend to low-income households.
On the face of it, the recommendations to introduce a multi-layered
banking system make sound sense as these ‘proposed’ entities will be serving the
financially weak segment of the country and overall, the inclusion plan for 2013-2016 looks good.
Except for the Aadhaar part.
But before we go ahead, let us have a look at Aadhaar and what all it offers. Launched by the
Unique Identification Authority of India (
UIDAI), the
Aadhaar scheme was initially introduced to ‘promote inclusion and benefits of the
marginalised sections of the society that has no
formal identity proof.’ Even today, Aadhaar-enabled services are essentially linked to various
government welfare schemes – so that its beneficiaries can access the same in a hassle-free manner.
However, the ‘
banking for all’ initiative in its ‘suggested’ format cannot be a marginalised movement, aimed to serve only the under-banked/unbanked regions or the weaker section or those below the
poverty line. It has to have a
unified structure across the country – involving every Indian citizen. In other words, it will be much like the ‘
voter card’ mechanism we have in place right now. At the age of 18, an Indian is entitled to get a voter card irrespective of the
financial divides. Going forward, if the central bank intends to follow the same principle and wants to bring the entire population of the country under its
inclusion umbrella (after all, one cannot leave one section of the citizens out of a
mass initiative just because they are financially more stable), opening an account at the stipulated age should become mandatory and that means a mandatory
Aadhaar validation.
And that brings us back to the basic question – what is the legal status of Aadhaar in India? Is it just a
financial inclusion tool for the economically weak or do the government agencies intend to turn it into an ‘all-inclusive’ tool required for every social and
economic activity – right from
marriage registration to
land registration, from banking to
shopping and more?
The RBI has already asked banks to ensure
Aadhaar authentication for
card transactions at merchant locations. “All new card present infrastructure has to be enabled for both
EMV chip and PIN and Aadhaar (
biometric validation) acceptance,” the central bank stated in a notification on November 26 last year.
Although the
Supreme Court has ruled that the
Aadhaar Card is not mandatory to get
government benefits and services, and the
National Identity Authority of India Bill is yet to get Parliamentary nod, Aadhaar seems to be enjoying a more hallowed status and getting its teeth deep into every key financial transaction one can think of. That might not be quite desirable at this stage as divulging
biometric data (required for Aadhaar Card) is still considered voluntary and
secure storage of the same cannot be guaranteed even now.
The rest of the recommendations by the committee dwell on the structure and requirements of the
proposed banks,
priority sector lending and deposits, and classification of non-banking financial companies (NBFCs).
Interestingly, the payment banks will be required to meet the standard
CRR terms and must also deposit the balance proceeds in approved
SLR securities with duration of no more than three months. As they won’t be permitted to assume any kind of
credit risk, which literally rules out any risk of default, the
minimum entry capital for them will be Rs 50 crore instead of the Rs 500 crore required for full-service commercial banks in the country. Also, the wholesale banks cannot accept deposits bigger than Rs 5 crore from a single depositor.
The RBI had launched a three-year financial
inclusion programme in April 2010, which prompted banks to open outlets in 200,000 villages. The current recommendations seek to deepen such access and experts even feel that the new banking licences, to be announced soon, can be categorised accordingly. But both the government and the RBI should ensure that the programme becomes ‘inclusive’ in the true sense of the term and validation issues should not throw a spanner in the works.
