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Is RBI nod for eKYC a step towards its total revival?

  • Banks can now use instant eKYC, based on Aadhaar details, for opening accounts
  • Biometric and OTP-based eKYC still not allowed for fintech companies

You will soon be able to open a bank account instantly, if you are willing to use the Aadhaar-based eKYC (electronic know your customer) process. The Reserve Bank of India (RBI) on 29 May amended its master direction on KYC norms to enable the use of Aadhaar for account opening with entities regulated by it, with the consent of the Aadhaar number holder. This will enable banks to open instant bank accounts using eKYC based on Aadhaar authentication through the OTP mode.

The change in RBI’s KYC guidelines is in line with the changes made by the government to the Prevention of Money-laundering Rules (PMLA) in February and the Aadhaar and Other Laws (Amendment) Ordinance, 2019.

The ordinance has enabled voluntary use of Aadhaar in physical (QR code) or electronic form for offline verification and eKYC, with the consent of the customer.

The use of Aadhaar-based KYC by banks, mutual funds, insurance companies and other fintech companies for instant and paperless onboarding of customers had come to a halt after the SC judgement on Aadhaar in September last year.

Saranya Gopinath, co-founder, Digital India Collective for Empowerment, a policy advocacy group, said there is now a clear delineation for banks under PMLA. “The ordinance has said that banks can use (online) Aadhaar authentication. Now the master direction has ratified that. It has also given clarity that offline Aadhaar verification will also be a valid KYC, for banks, NBFCs (non-banking finance companies) and all entities regulated by RBl," she said.

Akhil Handa, head, fintech, partnerships and mobile banking, Bank of Baroda, said the guidelines have brought clarity. “Some banks were depending upon the judgment and doing it (only for direct benefit transfer or DBT accounts). What the regulator has done is set and reinforced those guidelines. Now it will be easier for banks to acquire and onboard customers and open their accounts. This was expected and the clarity is back that Aadhaar can be used by banks," he said.

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So what does this mean for consumers across various financial services? Also, what’t the way forward on the issue of eKYC?

What it means for you

Banking customers: Before the Supreme Court judgment on Aadhaar in September 2018, banks were using Aadhaar eKYC to open instant bank accounts through apps and websites. Since Aadhaar was allowed, many banks and other RBI-regulated entities made eKYC mandatory then. But eKYC by all these service-providers was suspended after the SC judgment.

Though banks have now been allowed to use it once again, they can do so only if the customer gives her consent and is okay with using her Aadhaar details for the convenience of eKYC. Banks will now be able to remotely open instant accounts for customers opting voluntarily for Aadhaar authentication through the OTP method.

However, even before the SC judgment, Aadhaar eKYC had its limitations, which will still be there. The balance in accounts opened using OTP-based eKYC can’t exceed 1 lakh. Moreover, the account holder will have to undergo complete KYC verification within a year to convert the account into a regular one. To complete the KYC, the customer can now use Aadhaar biometrics or offline Aadhaar verification, or other officially valid documents.

Also, bank customers who want to get any benefit or subsidy under any scheme notified under Section 7 of the Aadhaar (Targeted Delivery of Financial and Other subsidies, Benefits and Services) Act, 2016, will have to use their Aadhaar for eKYC, with the declaration that the customer wants the benefits or subsidy.

Others: While RBI has now enabled it’s regulated entities to use Aadhaar authentication, when shared voluntarily, only banks can use eKYC. Other RBI-regulated entities, including fintechs like prepaid payment instruments companies, can use offline Aadhaar verification, but not biometrics.

Even for other financial services like mutual funds, insurance or e-wallets, the eKYC Aadhaar authentication is not allowed, as per the amendment to PMLA. However, like fintechs, they can use the offline Aadhaar verification, which can be done through the KYC XML or QR code. This process allows for KYC verification without sharing the Aadhaar number or biometrics.

For Naveen Kukreja, CEO and co-founder, Paisabazaar.com, a loans and credit cards aggregator, the offline use of Aadhaar for KYC doesn’t solve the problem and it becomes just one more document in addition to others. “In fact, due to the other requirement while accepting the Aadhaar document offline, which says the Aadhaar number has to be redacted, it may so happen that the person collecting the documents might insist on a non-Aadhaar document because there are no extra requirements on those other documents," he said.

WAY forward

If financial services companies other than banking companies want to use Aadhaar authentication, which is eKYC, they are required to apply to the government individually to get that access. The government will take a decision in consultation with UIDAI and specific regulators. The ministry of finance issued a circular in this regard on 9 May.

From a fintech perspective, the ability to be able to apply for the use of eKYC is a positive development, said Gopinath. “Some companies, including fintech firms, will surely apply for use of eKYC under Aadhaar. But if one is regulated by RBI, the banking regulator should open it up for all. Similarly, Irdai (Insurance Regulatory and Development Authority of India) and Sebi (Securities and Exchange Board of India) should open it up for their regulated entities," Kukreja said.

Before the use of Aadhaar for eKYC by private companies came to a halt, mutual funds had started using eKYC to onboard customers, making the process paperless and quick. Radhika Gupta, CEO, Edelweiss Asset Management Ltd, said that the days of being able to use Aadhaar for KYC was very beneficial for mutual funds. Similarly, insurance companies too used it not just for KYC, but also to detect fraud, said Ashish Vohra, executive director and CEO, Reliance Nippon Life Insurance Co. Ltd. Insurers have requested Irdai to represent the industry’s case to the government and arrange for the use of eKYC for them, he said.

The option of applying for eKYC access is available to all other entities under PMLA, other than banks.

But, Gupta said applying individually will not be very efficient. “If it can be done by banks then mutual funds have to be able to do it too. Ever since eKYC is gone, it is an inconvenience for mutual funds and for advisers. So, it is a very desirable thing to have, especially if you want to attract more investors. Though there is a way to do video KYC, but Aadhaar is the easiest way to do eKYC," Gupta said.

It remains to be seen how different regulators take up the issue with the government and if Aadhaar eKYC would become mainstream again, and when.

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