Ministry’s scepticism, Aadhaar issues hang over Nachiket Mor panel report

Mumbai: The finance ministry has questioned the practicality of some recommendations made by a panel formed by the Reserve Bank of India (RBI) to promote financial inclusion, including a 1 January 2016 deadline it has set for making an Aadhaar-linked bank account available to every adult Indian.

The panel headed by Nachiket Mor, a member of RBI’s central board, released the report on 7 January and the central bank sought public feedback on it until 24 January. Three months on, the central bank hasn’t followed up on any of its proposals.

“(There are) many loose ends that need tying up. Problem (is) compounded by some simplistic assumptions too,” financial services secretary Rajiv Takru said about the Mor panel’s report, when asked if its recommendations were workable.

Takru, who takes over as revenue secretary from Sumit Bose after the latter retires at the end of the month, didn’t elaborate beyond saying the report was otherwise a “good effort”.

Mor, a former deputy managing director of ICICI Bank Ltd, said he wasn’t aware of any finance ministry reservations on the report of his panel and hadn’t interacted with the ministry on it.

The ministry’s stance on the committee’s recommendations assumes significance in the backdrop of the fact that the report is a key element of RBI governor Raghuram Rajan’s effort to build a framework to promote financial inclusion in a country where 60% of the population does not have a bank account.

A key assumption made by the panel is that the Unique Identification Authority of India (UIDAI) would complete enrolment by December 2015 under the Aadhaar project, which is aimed at providing every resident in India with a unique 12-digit identity number. Based on that assumption, the panel set the 1 January 2016 deadline for full financial inclusion.

Shikha Sharma, managing director and CEO of Axis Bank Ltd and S.S. Mundra, chairman and managing director of Bank of Baroda—both members of the panel—had in a note to Mor said that January 2016 can be “an aspirational goal” for nationwide spread of banking services but given the “scale of the task”, January 2018 was a more realistic deadline.

Last month, at a meeting of RBI’s financial inclusion advisory committee, some departments of RBI too had flagged concerns on the implementation of the Mor panel’s report, according to a person who has seen the minutes of the meeting. The person didn’t want to be named.

The panel recommended that every Indian resident be issued a Universal Electronic Bank Account (UEBA) by national banks automatically at the time they receive their Aadhaar numbers.

Other suggestions included the creation of dedicated banks for promoting financial inclusion called payments banks, and refined targets for banks to lend to weaker sections, among others.

In an interview to Mint on 21 February, Mor had defended the panel’s proposals, arguing that the January 2016 deadline for UEBA was not based on “business as usual” and so it was not surprising that there has been debate on the timeline.

“There are already 56 crore Aadhaar (identity) numbers issued. UIDAI expects that enrolment of the entire eligible population will be completed by December 2015. Our recommendation is that the UEBA be opened automatically at the time of successful Aadhaar enrolment by the UIDAI for an enrolled individual desirous of obtaining a bank account,” Mor said.

But with Nandan Nilekani resigning as the chief of UIDAI to contest election from Bangalore South Lok Sabha constituency and the Congress party-led United Progressive Alliance government’s term coming to an end soon, the implementation of the Aadhaar project has plunged into uncertainty.

UIDAI, which came into existence on 28 January 2009, has so far covered only about half of India’s population.

“There are significant implementation bottlenecks for this (Mor panel report). There are possibilities that the new government will significantly modify the whole Aadhaar project. At this time, there is an uncertainty,” said Vijay Mahajan, chairman of India’s oldest microlender Basix, and an expert on financial inclusion.

Also, the Supreme Court’s direction to the centre on Monday to immediately withdraw any instruction issued by it for making possession of the unique identity number mandatory for citizens to avail of government services is a setback to the Aaadhar-linked financial inclusion plan, Mahajan said.

“The direction of the recommendation is good but the roadmap for implementation is unclear. In the absence of an adequate implementation framework, the report will become only a statement of good intent and there is no hope for at least next six months of any progress,” Mahajan said.

The Indian Banks’ Association, the lobby group of lenders, too had questioned the Mor report in January, arguing that some of its key proposals were impractical.

IBA, which has communicated the lenders’ feedback to RBI, said the 1 January 2016 deadline to ensure a bank account for all adult citizens wasn’t feasible and it would require at least until 2018 to achieve the goal.

It also objected to the panel’s proposals to implement a 50% adjusted target for so-called priority sector lending, as against the current 40% fixed target, and hold banks legally responsible if they did not offer suitable financial services to low-income households and small businesses.

The panel proposed to make it mandatory for banks to disclose their concentration levels to each segment in their financial statements, in an attempt to encourage banks to actively manage their exposure to various sectors, including the priority sector that includes agriculture and economically weak sections. Banks are required to channel 40% of their loans to the priority sector.