Four years ago, the apex court delivered a landmark ruling: Aadhaar proof is not mandatory for opening bank accounts or borrowing unless the customer is a beneficiary of government subsidies.
A Moneycontrol investigation to find out whether the ruling is being honoured found that some bank branches in Mumbai, Delhi & NCR and Chennai continue to insist on Aadhaar as a mandatory document to open savings bank accounts.
When a Moneycontrol reporter visited Canara Bank’s Goregaon East branch in Mumbai, a senior official insisted on a photocopy of the Aadhaar card to open a savings bank account.
When the reporter cited the Supreme Court’s judgment and the Reserve Bank of India’s (RBI) Know Your Customer (KYC) rules, the official still said Aadhaar was mandatory.
“The auditor gives an ‘unsatisfactory’ remark that the e-KYC for opening an account is not complete without an Aadhaar card,” the official said in an irritated tone.
It’s not an isolated instance. Branches of state-run banks like Central Bank of India in sector 37 of Noida, Bank of Baroda’s in Goregaon East and Indian Overseas Bank’s in Jameen Pallavaram, Chennai, also had officials insisting on a photocopy of the Aadhaar card to open savings bank accounts or take loans despite the customers not using government subsidies.
An email request for comment to Canara Bank, Bank of Baroda and Central Bank of India did not elicit a response.
Indian Overseas Bank, in a statement, said all its branches are following KYC guidelines issued or instructed by RBI, the central government and the Supreme Court from time to time.
To be sure, some banks – whether government-owned or private-sector – didn’t insist that Aadhaar was a mandatory document. They included some branches of State Bank of India and Indian Bank in Delhi and HDFC Bank and Axis Bank in Mumbai.
Most private sector banks in Mumbai too did not insist on Aadhaar to open savings bank accounts, Moneycontrol found.
What does the law say?
While upholding the constitutional validity of Aadhaar, the Supreme Court, in September 2018, said it is not mandatory for citizens to furnish Aadhaar for opening bank accounts if they are not availing of government subsidies.
Aadhaar is a 12-digit individual identification number issued by the Unique Identification Authority of India. The number serves as a proof of identity and address, anywhere in India.
In India, when banks open savings accounts or grant loans, it is mandatory that the process of Know Your Customer, or KYC, is completed. A KYC check is a process of identifying and verifying the client's identity.
According to the Reserve Bank of India, an officially valid document (OVD) for KYC includes a passport, driving licence, proof of possession of Aadhaar number, a Voter Identity Card issued by the Election Commission of India, or an NREGA job card signed by an officer of a state government and a letter by the National Population Register containing the name and address.
“Many end up handing over their Aadhaar as it is easily accessible and many carry it in their wallets,” said Rishi Wadhwa, a data privacy consultant. “Also, many do not want to argue with the officials – at banks, hotels etc at that point in time.”
What do bankers say?
According to bankers, the confusion is mainly because of lack of awareness among staff members and the convenience that Aadhaar provides when it comes to completing the KYC process.
“At the ground level, some staff are not trained and probably are not aware of the law,” said a senior banker at a state-run bank on condition of anonymity. “In most state-run bank branches, there is a heavy workload and the staff-to-customer ratio is quite skewed, which is why, for convenience's sake, Aadhaar may be the go-to document.”
The banker’s view was corroborated in Moneycontrol’s investigation at Union Bank of India’s Mulund branch.
In opening a savings bank account, a junior branch official insisted on an Aadhaar card proof. When Moneycontrol pointed to the relevant sections in the account-opening form where the list of documents included passport and voter’s ID card and expressed an unwillingness to submit Aadhaar proof, a senior official relented, albeit reluctantly.
“We will send it for processing and let’s see if any queries come up later,” said the Union Bank senior official.
Some bankers also said the technology put in place for KYC predated the Supreme Court’s verdict and had not been updated as yet in all bank branches, which is why the system itself does not process a request to open a bank account or sanction a loan without Aadhaar proof.
“Largely, the demand for an Aadhar card is due to lack of knowledge and ignorance of the Supreme Court’s judgment and also bank branches are acting on the basis of old list of KYC documents,” said Rahul Goel, a partner at AnantLaw.
Sonam Chandwani, the managing partner at KS Legal and Associates, said the Aadhar Act does not provide strong accountability measures for banks that violate its terms.
“Furthermore, given the existing state of affairs, there isn't much that can be done to impose sanctions on institutions that require the use of Aadhar cards,” said Chandwani.
“With no strict data privacy regulations in place and only UIDAI's (Unique Identification Authority of India’s) assurance, the possibilities of any formidable redress are slim.”
What should citizens do?:
Legal experts said that in light of the Supreme Court judgment, no bank can make it compulsory to provide Aadhaar to open a bank account although it can be optional.
“If any bank makes such a demand, the person receiving such a demand may complain to the Banking Ombudsman appointed by the RBI. Complaints can be filed through the online Complaint Management System implemented by the RBI,” said Vinod Joseph, a partner at Argus Partners (Solicitors & Advocates). “Another option is to file a complaint under the Consumer Protection Act, 2019.”
In order to better implement the Supreme Court order, in line with what the Aadhaar Act and regulations prescribe, the collection of Aadhar should be a purely consent-based mechanism wherein the holder is informed about the requirements and purposes associated with the submission of Aadhaar proof, experts said. Banks, on the other hand, can conduct staff training programmes and change their software systems in accordance with new rules.
The purpose of collection should be limited and storage of Aadhar Information after the verification has concluded, if applicable, should be carried out in accordance with the requirements under the Act and Rules – where the copies of any proof of Aadhaar have to be stored in an encrypted and secure manner.
“Where the submission of the Aadhaar is not mandated by law, consumers may exercise adequate prudence in terms of making sure that they have alternatives to the submission of the Aadhaar,” said Shreya Suri, a partner at IndusLaw.
“A good practice is also to check for any consent terms and to understand the purposes and uses for which the holder’s Aadhaar information may be collected,” added Suri. “Where the terms of the consent are not reasonable, the consumer should be free to object in such circumstances and opt for an alternative document to be submitted.”
If you have to produce Aadhaar proof, you must insist on sharing a digital masked copy. A masked Aadhaar option allows you to mask your Aadhaar number in your downloaded e-Aadhaar.
A masked Aadhaar number implies replacing the first 8 digits of the Aadhaar number with some characters like “xxxx-xxxx” while only the last four digits of the Aadhaar Number are visible.
“The least secure, but most convenient, way to share Aadhaar is to share the photocopy but put a clarification specifying the purpose for which it is being shared. You can also strike through the body while giving it to someone,” said Anupam Shukla, a partner at Pioneer Legal. “Masked Aadhaar would be comparatively more preferable, in my opinion.”