RBI allows banks, NBFCs to use Aadhaar for KYC with customer consent

You can now use your Aadhaar numbers on a voluntary basis to comply with the regulator's Know-Your-Customer (KYC) norms. The Reserve Bank of India introduced important amendments to the Master Direction on KYC on Wednesday along with updating its list of documents eligible for identification of individuals.

The KYC details basically enable banks and other regulated entities - including financial institutions, NBFCs, payment system providers, prepayment instrument issuers and agents of the Money Transfer Service Scheme - to understand their customers and their financial dealings better. This, in turn, helps them better manage their risks. First issued in the second half of 2002, the norms were initially applicable only to first-time account holders. Since 2004, even existing customers have been brought into the net, hence the need for periodic KYC updation.

"Banks have been allowed to carry out Aadhaar authentication/offline-verification of an individual who voluntarily uses his Aadhaar number for identification purpose," read the RBI notification. Moreover, "proof of possession of Aadhaar number" has been added to the list of Officially Valid Documents (OVD). However, that is subject to the condition that this is submitted as issued by the Unique Identification Authority of India (UIDAI), the Aadhaar-issuing body.

For customer identification of individuals, the RBI said those desirous of receiving any benefit or subsidy under direct benefit transfer (DBT), the bank should obtain the customer's Aadhaar and may carry out its e-KYC authentication. For non-DBT beneficiary customers, the regulated entities have to obtain a certified copy of any OVD containing details of customer's identity and address along with one recent photograph. The regulated entities "shall ensure that the customers (non-DBT beneficiaries) while submitting Aadhaar for Customer Due Diligence, redact or blackout their Aadhaar number", the amended Master Direction added.

Another important change regarding KYC norms is that all non-individual customers, like companies and partnership firms, have to mandatorily submit Permanent Account Number (PAN) along with other entity-related documents. "The PAN/Form No. 60 of the authorised signatories shall also be obtained," read the notification, adding "For existing bank account holders, PAN or Form No 60 is to be submitted within such timelines as may be notified by the Government, failing which account shall be subject to temporary ceasing till PAN or Form No 60 is submitted." However, before blocking an account, the regulated entities have to give the customer an accessible notice and a reasonable opportunity to be heard.

Note that while an individual who does not boast a PAN card can submit Form 60 for certain financial transactions, such as sale or purchase of immovable property and motor vehicles, or opening a bank account, this option does not apply to entities.

These changes come in the wake of amendments to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, in mid-February. After the Supreme Court in October struck down few sections of the Aadhaar Act and Regulations - such as Section 57, thereby nullifying the biometric e-KYC model used by telecom companies and banks for customer verification and onboarding - the government proposed to amend the Aadhaar Act, Indian Telegraph Act and the Prevention of Money Laundering Act. The idea was to not only conform to the top court's directives but also the report of Justice B.N.Srikrishna (Retd.) committee on data protection, in order to ensure that personal data of Aadhaar holder remains protected against any misuse and Aadhaar scheme remains in conformity with the Constitution. To this end, the Aadhaar and Other Laws (Amendment) Bill, 2018, was passed by the Lok Sabha in January, but before the same could be considered by the Rajya Sabha, the latter was adjourned.

In end-February, the Union Cabinet had approved the promulgation of Aadhaar and Other Laws (Amendment) Ordinance, 2019, to push through the above amendments. The Ordinance, which allows offline verification' of an individual's identity, without authentication, through modes specified by the Unique Identification Authority of India (UIDAI), among others, got the presidential nod in March. It further allows the voluntary use of the 12-digit unique number as identity proof for opening bank account or procuring mobile phone connection and gives minors an option to exit from the Aadhaar programme on attaining 18 years of age.

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