Aadhaar has made no mention of who will bear the cost of biometric POS readers and biometric ATMs. Will the bank customers be dumped with the huge bill for biometric ATMs?
On 12th September, a leading daily wrote about how ‘all new credit card machines and ATMs’ will be required to have an ‘Aadhaar authentication mechanism’ using biometrics. Remember, the massively expensive Aadhaar programme has no clearance from parliament. Yet, according to this report, RBI is “understood to be preparing such a directive to improve security and promote financial inclusion.”
Just a few weeks ago, a Moneylife Cover Story dealt with the steady increase in bank service charges. This new directive will involve additional expenses which bank depositors will end up bearing under the guise of technology costs. So far, Aadhaar has made no mention of who will bear the cost of biometric POS (point of sale) readers (according to a senior banker, they will cost Rs8,000 each) and biometric ATMs (Rs4 lakh for the machine plus installation, maintenance, electricity, etc). According to the newsreport, banks are expected to add around 200,000 POS machines and around 20,000 ATMs next year. We have always wondered about the rush to keep increasing the ATM network by each bank when they claim that technology costs are prohibitive. Now, it is clear that we, the customers, will be dumped with the bill for biometric ATMs.
One banker has already been quoted as saying that the cost will be so huge that they may have to divert funds earmarked for developing business to building this infrastructure to support the government’s programme. The big effort at financial inclusion, and the effort to force people to open bank accounts in rural areas, was apparently part of this long-term plan that was carefully kept out of the public domain.
There are two other issues that need to be taken into account. While Aadhaar-based authentication is touted as the panacea for financial inclusion of illiterate masses, it has not worked. Between 2004 and 2007, several banks launched biometric ATMs, with much fanfare, around the country. They did not work and had to be quietly discarded. Before embarking on another financial misadventure, the government needs to prove that there is better technology, which will work, especially since RBI’s internal committees have expressed several misgivings about the technology.
We also need some authentic data about whether fingerprints and Iris scans have worked successfully on rural folks with calloused hands and faded fingerprints which caused biometric ATMs to fail last time. While the UIDAI has long been pressuring RBI to order biometric ATMs, it has been strengthened with the appointment of Dr Raghuram Rajan as the RBI governor. In his first speech after assuming office, Dr Rajan said, "I particularly want to emphasise the use of the unique ID, Aadhaar, in building individual credit histories. This will be the foundation of a revolution in retail credit.”
Meanwhile, check out the statistics of how forced financial inclusion has worked so far. Deputy governor RBI, Dr KC Chakrabarty, said in a speech, “While over 150 million accounts were opened, only 30 million transactions have taken place up to December 2012.” This low acceptance of banks continues to plague the system and is affecting the financial viability of banks. The government hopes to change that by forcing un-banked people to get their subsidies and direct benefits through bank accounts.
It is an experiment fraught with a lot of teething problems. But, a government in a hurry to meet deadlines before the general elections in 2014 is likely to force unviable decisions on banks, with the cost burden born by existing customers.
Regulators pretend all is well, in response to the most glaring violations we report
A few weeks ago, the Securities & Exchange Board of India (SEBI) decided to break its established practice of responding to the media only through its communications department and sent us an aggressive letter defending the actions it has taken to help investors of portfolio management schemes (PMS). The letter and our response have been published on our website. But it is the first time in nearly six years that SEBI has chosen to respond to an issue, that too in writing. Readers of Moneylife know that we have been fighting a two-year battle to force transparent disclosure of PMS performance. We filed an application under the Right to Information (RTI) Act, won an appeal to the central information commissioner and only then was the regulator forced to publish performance data of these schemes for high net-worth individuals. SEBI’s letter makes no mention of it, or of our pending appeal to put out more comprehensive information. However, it establishes that the regulator does read what Moneylife has been writing, fortnight after fortnight.
So what conclusions does one draw when SEBI does absolutely nothing about the brazen manipulation of stock prices that we have been reporting in our section called “Unquoted” for the past four years? Or, when it does nothing about the shenanigans of the McDonald’s franchisee, Westlife Development, whose share price is locked at the upper circuit with volumes of just one share on most days (the stock rose 220,000% without attracting any action from SEBI or the stock exchanges)? SEBI’s letter, more than anything else, is an indicator of the brazen lack of accountability of India’s independent regulators.
The parliament and its committees, which are supposed to act as natural checks & balances, do not go beyond cursory questions and have no time to examine the opaque answers. Meanwhile, the regulators are arming themselves with greater powers over people and companies which can be wielded with the same deadly effect as other investigation and enforcement agencies. SEBI is not alone in this attitude. The insurance regulator, conveniently located at Hyderabad, rarely responds to or engages with consumers.
Take this example. Moneylife’s Cover Story on how a barely literate retired railway ticket-checker, Arvind Injamuri, was a victim of shocking mis-selling by officials of Reliance Insurance. Some of the policies sold to him smacked of fraud and forgery. Yet, after our persistent follow-up, all IRDA (Insurance Regulatory Development Authority of India) did was to ask the company to cancel the policies and return the money with interest. The same Reliance Insurance has a corporate agent called AB Capital, which is enticing the gullible to buy insurance policies with the outrageous promise that they will receive interest-free loans of up to 10 times the premium. Moneylife Foundation’s insurance helpline has helped 15 people get back over Rs5 lakh. We have written to the regulator and also briefed him at a Mumbai seminar. No action or response.
The Reserve Bank of India (RBI) is far more open, but has no formal mechanism to engage with consumers. Even the chambers of commerce, whose collective financial muscle ought to give them some clout, only lobby the interests of powerful office-bearers. Consequently, new laws, with far-reaching implications for companies and for the national exchequer, have been hurriedly passed by parliament with perfunctory discussion. Educated, tax-paying savers need to start thinking about the long-term consequences of these issues.