New Delhi: At a time when the government is preparing to use Aadhaar-enabled bank accounts for direct cash transfers of subsidies, the finance ministry has clarified that the unique identification number can only be used as an identity proof and not as an address proof for opening regular bank accounts.
While an Aadhaar unique identification number is sufficient to open a no-frills bank account, it is not enough for a regular account, financial services secretary D.K. Mittal said, addressing the concerns of some northern states over the problems faced by customers in opening bank accounts using the Aadhaar number.
There has been confusion among banks over accepting Aadhaar as the sole “know-your-customer” (KYC) proof.
The Reserve Bank of India (RBI), in a notification, had also insisted that the banks satisfy themselves that the address contained in Aadhaar is correct.
“As per RBI guidelines, Aadhaar is enough for meeting know-your-customer requirements for no-frill accounts. But for large accounts, an address proof is also required along with Aadhaar,” Mittal told reporters after a meeting between finance minister P. Chidambaram and the chief ministers of six northern states.
A no-frills account is subject to various limitations, including a Rs.1-lakh cap on the total amount that can be deposited in it in a fiscal. Customers also need to provide more details within a year for the account to be operational though the deadline can be extended by a year.
Delhi chief minister Sheila Dikshit, who was also present at the meeting, said the government had received complaints about difficulties in opening bank accounts using Aadhaar.
The opening of Aadhaar-linked bank accounts is key to moving towards a regime of direct transfer of cash subsidies for the various schemes of the government. The government has announced that starting 1 January, direct cash transfer of subsidies to beneficiaries will begin in 51 districts.
A government official aware of the development said the first notification issued by RBI said Aadhaar was a valid proof of address and identity for no-frills accounts but later it issued another notification to make the unique identity number a valid proof of address and proof of identity for regular accounts as well.
However, the language of the notification was ambiguous, which created confusion among banks about it being a valid proof of address, he said on condition of anonymity.
Mittal said there is unlikely to be any change in this stand as the central bank has to adhere to the global norms for preventing money laundering.
The government will also start with cash transfers to those beneficiaries who do not have an Aadhaar number. “Aadhaar is not available to everybody and there are operational issues there. Wherever Aadhaar is not there, we will not wait for Aadhaar to come,” Mittal said. “We will start money transfer from 1 January. Where there is no Aadhaar, we can use voter cards which are acceptable KYCs. When Aadhaar comes, we can adopt that,” he said.
In the meeting, the finance ministry held discussions with the state governments on how to ensure smooth transfer of cash subsidies for the various schemes run by the states as well as steps to integrate bank accounts with state systems.
“The Aadhaar number is being used only as an identity proof since there is a possibility that the address printed in the card has changed,” said Narendra Singh, chairman and managing director of Bank of Maharashtra. “Banks are getting prepared for starting electronic cash transfers. The main challenge will be to put in place a low-cost operating model, which will mainly be through the business correspondent route,” he said.
Surabhi Agarwal contributed to this story.