Unique ID will be enough to open account

Unique ID will be enough to open account

New Delhi: India’s ambitious unique identity programme or Aadhaar received a shot in the arm with the finance ministry saying the 12-digit number that will eventually be given to all Indians will be adequate to open a bank account or conduct any other financial transaction.

The move, experts and analysts said, would bring more people under the coverage of the financial system. These are people who are currently not served by banks and other finance firms for lack of proper identification, these people said. The increased penetration of banking services will prevent leakages in government schemes such as the job guarantee programme and systems such as the public distribution system through which foodgrain and other products are rationed to the needy.

In a notification released on 16 December, the finance ministry amended the Prevention of the Money Laundering Act, 2002, to make the Aadhaar number equivalent to the know your customer (KYC) norms are required for any financial transaction.

L.P. Aggarwal, managing director and chief executive officer of Punjab National Bank Investment Services Ltd (PNBISL), said the strict requirements of KYC norms does rule out the participation of a large number of Indians in the banking system.

“This is especially true in the case of migrant population who have little or no proof (of identity)," added Arun Kaul, chairman and managing director of UCO Bank. Both bankers said that since Aadhaar will be a national number, making it equivalent to KYC norms is a significant step.

“This notification is expected to promote the financial inclusion of the poor and the hitherto excluded by making it possible for them to easily establish their identity and open bank accounts," the Unique Identification Authority of India (UIDAI) said in a statement.

Aggarwal of PNBISL added that since subsidy money from the government will go directly into the bank accounts of the beneficiaries, “there will be little scope for leakages as everything can be traced back to the end beneficiary through the UID."

Other experts said that the notification would also benefit customers in urban areas by eliminating the need for multiple documentation, some of which needs to presented in physical form. The Aadhaar number can be authenticated online and has all relevant information about an individual.

UIDAI plans to issue unique numbers to around 600 million people by 2014 by collecting basic demographic data and biometric information such as fingerprints and iris scans. By March 2011, around 100 million Indians will have a unique ID, if the authority meets its targets.

Nandan Nilekani, chairman of UIDAI, recently said on the sidelines of a conference that 80% of the people who are enrolling for Aadhaar also want to open a bank account.

“UIDAI is facilitating opening of bank accounts for the residents at the time of enrolment for Aadhaar through partner banks and acceptance of Aadhaar as a valid KYC will make the process seamless," the authority’s statement said. According to the Reserve Bank of India, out of 600,000 villages with a population of 2,000 or more, only 30,000 have access to banking services.

The move will also help banks meet their mandate of covering all villages with a population of at least 2,000 by March 2012.

Microfinance firms, which have been working on taking banking to rural areas, welcomed the finance ministry’s notice. N.D. Rao, chief technology officer of microfinance firm Basix, said that firms like his can now reach out to more people with the problems posed by a lack of identification being removed. “Since we have limited funds and demand is high, we usually enroll people who have some kind of identification," he said. Abhishek Sinha, co-founder and chief executive of Eko India Financial Services Pvt. Ltd said much will depend on how soon UIDAI can roll out its programme.