Banks Manage Protest Against Aadhaar Imposition, KYC Compliance

PSU banks express reservation against usage of Aadhaar number for cash-transfers-Economic times

MUMBAI/NEW DELHI: 14th April 2013  The government's plan to make the Aadhaar number the centrepiece of the cash-transfer system is now facing opposition from a new quarter: banks. Several banks, led by State Bank of India, have expressed reservation against jettisoning their current systems in favour of the platform created by the Unique Identification Authority of India (UIDAI), which issues the Aadhaar number and wants to make it the basis to authenticate an individual's identity before every transaction in bank accounts into which welfare benefits are deposited.

These new lines of conflict are throwing posers to, and could even delay, what is being seen as UPA's gambit for the next general elections, due in 2014: universalisecash transfers.

The banks' reservation to the UIDAI authentication platform, built along with the National Payments Corporation of India (NPCI), a payment gateway, centres around two points.

One, banks want the UIDAI to bear all liabilities related to 'false identification' — an individual's complaint that someone else withdrew money from her bank account. "Till this issue is sorted out, we cannot use this system," says LP Rai, deputy general manager, rural business (IT-P&SC), SBI.

Two, UIDAI wants banks to retool their respective systems in line with its own, which is 'inter-operable' — accountholders can transact on a handheld machine of any bank, as with ATMs now. While some banks, including SBI, accept a common system is the way to go in the long run, they are questioning the need to make this shift today, particularly in the absence of safeguards that protect their interests. "You will hardly find inter-operability in villages," says K Unnikrishnan, deputy chief executive of Indian Banks' Association (IBA), the lead grouping of banks.

The current impasse revolves around contingent liability in case of a false identification. "Suppose we go ahead with a transaction because Aadhaar has told us that the person is the accountholder, but the accountholder later tells us it was not him. Who holds the liability in such a case?" asks a senior banker in SBI's financial inclusion team, not wanting to be named. "Since UIDAI wants to do the authentication, it should also take on the liability."

A senior manager in UIDAI's financial inclusion team, speaking on the condition of anonymity, says the rules don't authorise UIDAI to do so. "We cannot set aside money for such liabilities," he says. According to Unnikrishnan, a request made by banks to rework their agreement to address this issue has been with the UIDAI for two months.

Banks, which will have to pay to use the UIDAI-NPCI platform, are also wary of dealing with a monopoly. "Who is to say they will not increase their charges? It's an extra cost for me," says a senior banker with a large PSU bank, not wanting to be named.

For now, banks are standing by their individual systems, which don't talk to each other. So, SBI has fingerprinted its accountholders and does its own pre-transaction verification. Other banks have done the same. C Rajendran, executive director, Bank of Maharashtr, says the SBI model is the "only viable solution" for authentication till the issue of contingent liability is sorted out.

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/psu-banks-express-reservation-against-usage-of-aadhaar-number-for-cash-transfers/articleshow/19551284.cms

Banks want powers to ensure KYC compliance--Business Line 

K. RAM KUMAR

Look to temporarily freeze customer account, take away select facilities

MUMBAI, APRIL 12:  

If you don’t update your know-your-customer (KYC) documents, banks may temporarily freeze your account or withdraw certain facilities.

Well, banks have moved the banking regulator to arm them with such powers.

This request comes as banks, during a special KYC audit conducted at RBI’s behest in the November-December 2012 period, found that customers who have been banking with them for long are not coming forward to provide latest KYC documents.

KYC is a customer identification process and has two components — identity of the customer and address.

Bankers say while proper KYC procedures are done for new accounts, the problem is with the old accounts.

A senior public sector bank official said though his bank sent a number of letters to customers requesting them to provide recent KYC documents, hardly 10-15 per cent have responded.

RELUCTANT CUSTOMERS

“When the bank asks for KYC documents, the customers (persons or entities maintaining an account and/or having business relationship with the bank) are reluctant to provide the same or are not forthcoming. Their argument is that since they are banking with the same bank for many years, why this sudden need for providing fresh documents when there is no problem in the conduct of the account,” the official said.

The KYC audit that banks conduct will not convey the right picture till such time that the RBI does not empower them to either temporarily freeze an account or specifically mention the bank facilities that may be withdrawn in case the customer is not coming forward to update the KYC documents.

CUSTOMER IDENTIFICATION

KYC process involves determining true identity and beneficial ownership of accounts, source of funds, the nature of customer’s business, reasonableness of operations in the account in relation to the customer’s business, etc.

The objective of the KYC guidelines is to prevent banks being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities.

KYC procedures enable banks to know their customers and their financial dealings better and this in turn help them to prudently manage their risks.

While the identity of a customer remains the same, the address may change and hence the banks are required to update their records.

Proof of identity documents (one of which has to be submitted to the bank) include passport, permanent account number card, voter’s identity card, driving licence, and an identity card. Proof of address documents (one of them has to be submitted to the bank) include telephone/ electricity bill, bank account statement, letter from any recognised public authority, and letter from employer.

http://www.thehindubusinessline.com/industry-and-economy/banking/banks-want-powers-to-ensure-kyc-compliance/article4610971.ece