Banking on Aadhaar

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Banking on AADHAAR

NSN REDDY*

Email id: nsn6507@yahoo.com ; Mobile 09490213002

The Unique Identification Authority of India (UIDAI) was established by Government of India with an objective to implement Multipurpose National Identity Card or Unique Identification Card (UID Card) in India. This project is part of the Planning Commission and headed by Mr. Nandan Nilekani, a former co-chairman of Infosys Technologies. It is aimed to issue a unique identification number to all Indian residents with intent to eliminate duplicate/fake identities and to put hassle-free, cost effective verification/authentication system in place thereby to save considerable resources of various User Departments as well as beneficiaries at large.

UID project gives a big push to the government�s financial inclusion agenda and also provides the strong foundation to deliver better services and paves the way to improve the operational efficiency of the system. It will be helpful in better monitoring and targeting of social benefits and employment programmes. Further, it paves the way to have synergies among various ID initiatives i.e. Voter ID, Passports, Ration cards, Licenses, Fishing permits, Border area ID cards etc. Addressing illegal immigration and associated risks is another goal of the program.

The UIDAI unveiled new name and logo and the Unique ID number will now be known with brand name AADHAAR. The logo represents a new dawn of equal opportunity for each individual and the sun symbolizes a promise that shines on all residents equally.

To achieve the gigantic task, which is first of its kind in the world to cover all the residents with demographic and biometric information, UIDAI is enrolling the following organizations, which are having access to large client base, as Registrars to undertake enrollment process.

No	Organization	Client Base
1	Public Sector Banks (Accounts)	24 Crores
2	LIC of India (Policy Holders)	17 Crores
3	Central / State Governments (BPL)	15 Crores
4	Oil Companies (LPG)	11.50 Crores
5	Transport Authorities (Driving Licenses)	9 Crores
6	Income Tax Offices (Tax Payers)	7 Crores

The Registrar or its agents collect details of Demographic information and Biometric details such as Facial Image (Photo), Finger Prints (10) and iris scan of the applicant to establish individual�s uniqueness. De-duplication exercise ensures that nobody gets more than one number and in case a person already enrolled approaches the registrar, his biometric parameters will be run through the database and if matches his application will be rejected right away.

Any location which is equipped with a mobile phone and a fingerprint reader will be able to act as an authentication point and confirms the identity of the person online. The residents who possess AADHAAR can avail the entitled benefits/services throughout his life across the country.

Financial Inclusion: Despite amplified thrust by the government on increase of branch network across the country since 1969, still the fruits of the banking not reached to the common man which is evident from the below:

� Half of the residents are out of the banking system and unable to prove their identity on account of poor financial back ground and belongs to Below Poverty Line (BPL) segment.

� 60% of farmers do not have access to credit from Banks.

� It is estimated that the poor pay $10-12 billion as usurious interest (30 to 40%) each year. Even Micro Finance Institutions charge 20-30% interest.

� More than 40% of the government�s subsidy and social spending is being siphoned off, mostly by �ghosts� and undeserving recipients.

In spite of best efforts, the various welfare/employment generated programs aimed at poor households with huge budget allocations (NREGS, JSY and PDS) are going in to unscrupulous hands and leading to widespread leakage of public money.

Even after 63 years of independence and 40 years of Bank�s Nationalization, still majority of residents are under the clutches of Money Lenders and deprived of financial independence. The views of Sri. K C Chakrabarty, Deputy Governor, RBI on the issue is worth noting �Our approach is that those who are borrowing from Micro Finance Institutes must now borrow from the Banks and those who are borrowing from the Money Lenders must borrow from Micro Finance Institutes�.

It is envisaged that the beneficiaries of the various schemes will be paid directly through banks and this paves the way for effective control on usage of government funds and lays strong foundation to achieve financial inclusion in the ensuing years.

AADHAAR Project - Role of Banks:

Public Sector Banks already started entering MOU with UIDAI to act as Registrars for AADHAAR project. Banks are likely to play beyond the role of enrolling agents.

KYC compliance: Today, the major constraints faced by the banks while opening of accounts is the absence of valid identity and address proof of the prospective customers and it is causing inconvenience to the public and operational problems to the banks thereby unable to achieve the desired financial inclusion. Once the project comes to live, AADHAAR number may be treated as substitute for KYC compliance which enables the banks to open accounts with a greater speed and accuracy besides saving of considerable resources.

Micro ATMs: As a step towards financial inclusion, RBI has allowed banks to engage intermediaries i.e. Business Correspondents (BC) to carry out specified financial transactions through Public Call Office operators, Kirana Stores, Medical Shop owners and Fair Price Shop dealers etc. The intermediaries would be provided mobile phone and fingerprint reader and would act as a Micro ATM where a person could go to any BC across the country to withdraw/deposit money. AADHAAR could emerge as a payment card linked to a savings account and function as a pre-paid / smart card where the government credits the amount to the accounts directly. On implementation of the project, banks would have immediate access to many more potential customers at the bottom of the pyramid through Branchless Banking; however, this requires substantial investment in technology.

Mobile Banking: The Aadhaar project enables the mobile industry to create a Low-Cost High-Volume ubiquitous transaction platform to penetrate into remote rural areas of the country. Under this every transaction point will have a mobile phone and a fingerprint reader. The resident having Aadhaar number simply walk in to any point and complete his financial transaction with ease since the service provider gets the authentication from UID online. Once this model is stabilized, the distribution of financial products and services can be opened up to whoever is willing to invest in a mobile phone and a fingerprint reader. Millions of financial correspondents could be enrolled. The AADHAAR platform enables the banks to provide Virtual Banking.

The distribution of financial products and services at the lowest rung of the pyramid requires a low-cost model that allows accepting and making of a large number of micro payments to and from the poor. The high intermediary cost of the banks is a stumbling block to reach the poor, which need to be addressed.

In the above backdrop, Banks need to revisit their approach towards low value accounts of vast neglected population and adopt �High Volume � Low Margin � High Profit� business model backed by technology. This strategy enables to bring more customers in to bank�s fold since this segment provides ample opportunities to improve business/profit on account of cost effective solutions.

A budget of `3000 crores is allotted for implementation of the ambitious project with an objective to cover 60 crore residents by 2014. The first set of 10 crore AADHAAR numbers are expected to be issued by March 2011. Currently, pilot projects are in progress in three states viz., Andhra Pradesh, Karnataka and Bihar. Government proposes to pay `100/- as incentive to the residents belongs to BPL category for enrollment to meet their wage loss and travel expenditure.

Government propose to pay `50/- to the Registrars for each successful enrolment which is not commensurate since the associated activities such as attending Proof of Address, Proof of Identity and Proof of Date of Birth, biometric information etc., involves considerable resources. In the light of increased cost of operations, there is an urgent need to revisit the charges payable to the Registrars.

The success of the project crucially depends on the active participation of the Government in providing proper infrastructure/logistic support to the concerned and committed efforts of the Registrars or its agencies in enrollment exercise especially those who do not have documentary proof to establish their identity.

The long cherished dream of Indians to have Unique Number comes true shortly and it definitely brings qualitative changes especially in delivery of public services through banking channels. Banks are going to play vital role in enrollment as well as in providing the required financial services to the target population. Banks are required to convert the AADHAAR as an opportunity for business development by adopting appropriate cost effective innovative strategies.

*[Mr NSN Reddy, who is working as Chief Manager, in Andhra Bank has B,Com, CAIIB, PGDBM (NIBM) qualifications to his credit and has over 32 years of Banking experience]

Important Notice : [The articles written by authors contains only the academic view of the writer and purely for discussions and updation of the knowledge of the bankers. The views expressed in the articles may not at all be subscribed by the organisation where the author is working and / or AllBankingSolutions.com]