The Reserve Bank of India (RBI) has made seeding of Aadhaar number in bank accounts mandatory as part of updated ‘Know Your Customer (KYC)’ guidelines, although the move will be “subject to the final judgment” on Aaadhar in the Supreme Court of India. The Supreme Court is currently hearing multiple petitions on the constitutional validity of the Aadhaar. If this change in norm is dependent on the Supreme Court’s ruling wouldn’t it have been more prudent to wait for the judgement to pass?

So far the only items needed to open and operate a bank account were an Officially Valid Document (Passport, Voter ID etc) for address proof, a PAN card and a recent passport size photograph. Under the amended Customer Due Diligence (CDD) procedure, RBI said, “The Aadhaar number, the PAN or Form No. 60” need to be obtained from an individual who is eligible for the same. If these details are not available, the customers would have to provide proof that they have applied for these identification documents and will have to furnish the final details in six months. In case the customer fails to submit these details within the aforementioned six months period, his/her account shall cease to be operational. The circular does mention that in case of asset accounts such as loan accounts, only credits shall be allowed.

According to the circular, those without Aadhaar and PAN numbers will be assigned ‘small accounts’, which have severe restrictions and are closely monitored to ensure no foreign transactions take place. These small accounts will also have their maximum balance limited to Rs 50,000. Such accounts can only be opened only at core banking solution-linked branches where it is possible to manually monitor them and ensure that foreign remittances are not being credited.

Why not wait for SC’s judgement?

Even though the RBI said the updated KYC requirement was subject to the Supreme Court’s final judgment, it is very likely that banks may refuse to accept any other document, citing the RBI circular. This might also cause panic for customers who have existing bank accounts that are not linked to Aadhaar.

The updated norms drew criticism from petitioners who have approached the Supreme Court challenging the constitutional validity of Aadhaar. Speaking to the Hindustan Times, Vipin Nair, one of the advocates representing the petitioners said, “It is premature of the RBI to have issued an order of this nature. It should have awaited the Supreme Court verdict, when the matter is pending, when the arguments are on, and when their side is responding.”

The HT report also mentions that a government official familiar with the matter said the updated KYC norms were necessitated by provisions of the Prevention of Money Laundering Act and Prevention of Money Laundering (Maintenance of Records) Rules amended last year to ensure a secure banking environment. These were aimed at ensuring that no one or no entity could open an account under a fictitious or fake name. This argument rings hollow as a there are multiple ID documents that can be procured from a customer to establish his/her identity including the PAN card.

(Nikhil adds: It’s not clear as to what the need was for the RBI to issue this mandate: was it to add to purported legitimacy to the government position of linking Aadhaar with everything, while the Supreme Court is still hearing the case?)