Efforts to link bank accounts with Aadhaar gather steam

The government’s efforts are primarily geared towards fixing leaks in the direct benefit transfer schemes and ensure people got the funds in a secure manner


Mumbai: Efforts to link bank accounts to Aadhaar, which had slowed after an adverse Supreme Court order and a central bank notification, have picked up again, with banks starting email and text message campaigns targeting their urban customers, four bankers in the know said.

“While there is no explicit direction from the government on seeding Aadhaar numbers to bank accounts, they do keep inquiring every time there is a Jan Dhan meeting about the progress on it,” said the managing director and chief executive officer of a public sector bank, the first of the four bankers mentioned above, on condition of anonymity, as the meeting with government officials is confidential. The effort was initially targeted at those holding Jan Dhan accounts and later expanded to all urban customers.

As of 25 May, 219 million bank accounts were opened under the Jan Dhan Yojana, of which over 100 million were linked to Aadhaar. In comparison, there were 158 million accounts a year ago, of which 61 million accounts were Aadhaar-linked.

“There are a number of urban customers who still depend on government subsidies, such as those received for LPG (liquified petroleum gas). Aadhaar linkage is very easy for them as the government can send a payment directly to their bank accounts. A lot of our mobile campaigns have been focussed on them. For other customers, we can reduce the amount of paperwork required to maintain a bank account, by using a unique identification number,” said the retail chief at a large private sector bank, also speaking on condition of anonymity, as he isn’t allowed to speak to the press.

This banker added that the attempt is to encourage customers to use Aadhaar as a primary know-your-customer document, without making it mandatory.

While banks have been pushing for Aadhaar seeding with bank accounts for two years, the pace slackened after Supreme Court orders in August and October 2015. The order in October said that Aadhaar cannot be made mandatory for any government benefits and can be voluntarily used to gain benefits of the MGNREGA, government pension scheme, Jan Dhan Yojana and the employment provident fundd.

The apex court’s main reservation against making Aadhaar mandatory was the privacy concerns around it. Following this, the Reserve Bank of India (RBI) in January notified that the seeding of bank accounts with Aadhaar is purely voluntary and can’t be insisted upon by banks.

The notification marked a reversal of the regulator’s previous stance of getting banks to sign up a large number of customers on the Aadhaar network. In July 2013, RBI asked banks to take steps to complete account opening and seeding Aadhaar numbers in all districts eligible for direct benefit transfers. With a view to facilitating DBT for delivery of social welfare benefits through direct credit to the bank accounts of beneficiaries, RBI had advised lenders to open accounts in camps with support from local authorities.

The attempt to use Aadhaar to curb subsidy leakages, which started during the previous government, has been continued by the current administration. In his budget speech in February, finance minister Arun Jaitley said thegovernment would provide statutory backing to Aadhaar . In March 2016, the Lok Sabha passed the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Bill, 2016, which seeks to make the use of Aadhaar mandatory to avail subsidies.

The government’s efforts were primarily geared towards fixing leaks in the DBT schemes and ensure that the beneficiaries got the funds in a secure manner.

“The bottomline is to move away from physical cash and towards a digital money economy… With Aadhaar, the banks can achieve a broader objective of digitizing data which can be used to gain analytical information. This would improve the life of the customers for the better. Moreover, it will also help banks reduce their cost of delivery by making services more customised,” said Naresh Makhijani, partner and head (financial services) at consultancy KPMG.