BackUIDAI may assume liability for frauds in cash transfers
UIDAI determining scenarios where it will be responsible, extent of damages, mitigating liability
Premium(Priyanka Parashar/Mint)
New Delhi: The Unique Identification Authority of India (UIDAI) may assume liability for some frauds arising out of false authentication under the United Progressive Alliance (UPA) government’s ambitious direct benefit transfer (DBT) system, according to government officials familiar with the development.
UIDAI, which issues the Aadhaar unique identification number, is currently determining the scenarios in which it will be responsible, the extent of damages and ways to mitigate the liability including options such as insurance or a contingent fund.
DBT, the direct payment of subsidies to beneficiaries, is currently being rolled across the nation and is likely to be held up as one of the government’s key achievements in national elections scheduled in 2014.
Government officials said UIDAI may have to assume responsibility in cases where a person claiming to be a beneficiary under any scheme approaches a bank to withdraw the entitled funds and is wrongly verified as the beneficiary and gets the payment.
What this means is that if the wrong person is “false-accepted" as the beneficiary identified in government databases using Aadhaar, UIDAI would need to compensate the department/payer so the payment can still be made.
The assumption of liability has been a bone of contention among the finance ministry, UIDAI and other government departments with none of them willing to assume responsibility in cases of fraud while making payments based solely on Aadhaar authentication.
While the finance ministry was of the view that the responsibility for fraudulent transactions should be borne by UIDAI and not the banks given that the authentication of the beneficiary is being made through Aadhaar, UIDAI was reluctant to do so.
A senior UIDAI official said a resolution to the liability issue to “satisfy all stakeholders" was being worked upon and the issue would be sorted out in the next few weeks.
Another senior UIDAI official said given the low probability and low transaction values, the damage that could be caused by false authentication is small and is still being assessed.
“We are looking at risk assessment and mitigation, but mitigation will come later. We first have to carry out a risk assessment to see how much is the value of transactions where there are ‘false accepts’," the official said. “We will be looking at coming out with a strategy over time to mitigate liability, through insurance, a fund or other means. False rejects are a problem but they don’t sustain," the official added.
According to UIDAI, though the probability of “false accept" cases or the “false accept rate" is still being assessed, past experience shows it is expected to be very low at around 0.01% of transactions.
DBT, which was rolled out in 43 districts in the first phase, will cover another 78 districts from next month. Initially used to deliver scholarship and maternity benefits, the government brought the cooking gas subsidy under the scheme from the beginning of this month.
Under the system, the government department responsible for a particular welfare scheme provides the name of the beneficiary along with his or her bank account and Aadhaar number to a bank, also known as the sponsor bank.
The bank sends these details to the National Payment Corporation of India, which in turn credits the bank in which the beneficiaries have an account. The money then goes to the Aadhaar-enabled account of the beneficiary from where it can be withdrawn through ATMs, business correspondents or from a bank branch.
The concerns over fraud relate to this stage in the process and could be applicable to multiple channels of cash withdrawal such as banks, business correspondents or post offices where Aadhaar is used for authentication.
“If banks are using the Aadhaar database for verification of the beneficiary, then the onus is on UIDAI to ensure correct verification. Why should banks agree to bear the burden in case their systems make a mistake?" said an official with a Delhi-based state-run bank.
The latest version of the UIDAI-Authentication User Agency Agreement on the authority’s website states that, “UIDAI shall have no responsibility or liability in relation to failures that may take place during the Aadhaar-based authentication process, including but not limited to, failures as a result of false accept, false reject, network or connectivity failure, device failure, possible down time at Central Identities Data Repository, etc."
A compromise will be needed to resolve the matter, said Y.P. Issar, a former general manager at a state-run bank.
“The problem arose when UIDAI put all the onus on banks. Banks, in turn, felt that there was no need to use UIDAI’s systems when they had their own internal systems," Issar said. “It is important that both sides climb down from their stated positions as Aadhaar and banks are both crucial for financial inclusion."
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