World
The vulnerable underbelly of the Chinese rural banks

Lack of liquidity, dodgy loans and the lack of a central government guarantee is a sure fire recipe for a collapse. The question is not whether there will be more runs on small banks like Jiangsu Shenyan Rural Commercial Bank. The question is whether there will be enough of them to metastasize and affect the entire Chinese financial system

Recently something happened that should not have. A bank in China experienced a run. Last month, China had its first bond default. Now rumours started that the Jiangsu Shenyan Rural Commercial Bank was on the verge of collapse. Lines formed outside one of its branches as depositors were desperate to withdraw funds.
 

The bank did all it could to reassure depositors. It promised to operate 24 hours to serve customers. It piled up stacks of money in the windows to prove it was solvent. The governor of Shenyang County, north of Beijing, promised the depositors that their money was safe. Finally the People’s Bank of China (PBOC) stepped in to assure that they would back up the bank.
 

The immediate crisis passed, but the problems still persist. The customers of the bank did have cause for concern. A few local credit cooperatives and loan guarantee companies have gone bust in Shenyang this year. They lost a total of Rmb 80 million ($13 million).

It would be easy to brush aside the bank run and the collapse of some lightly regulated rural credit companies. You could look at it as a purely local problem due to mismanagement. It could be dismissed as a tiny part of a much greater whole. Shenyang Bank managed only Rmb 12 billion ($2 billion). This represents just 0.01% of the total assets in the Chinese banking system.
 

If the problems were merely limited to one town and one bank, there wouldn’t be a cause for concern. But it isn’t. The troubles at Shenyang bank are just the most recent sign of a financial system under stress.
 

The stress is neither local nor small, because it stems from the same cause. Like every other government, China’s reaction to the 2009 recession was to provide massive stimulus. Unlike other governments, China did not use taxpayer money. It put lending quotas on state owned banks mandating loans mostly to local governments and state owned industries.
 

But there was another problem. The recession threw 20 million migrant labourers out of work. Unemployed workers returning back to their villages might have caused social unrest. So, the Chinese government, needed a way to get the stimulus money out into rural areas.
 

In 2009, there were only 100 rural banks, seven rural lending companies and 11 credit cooperatives in China. The number of banks increased ten folds to 1,027 by 2011. The number of rural cooperatives exploded to about 5,000 today. Firms originally began as micro lenders were allowed to become banks, if their non-performing loan ratio was under 2%, and they had profits for two years. In addition, the Ministry of Finance provided subsidies of 2% to healthy rural banks. Since this is China, these new banks provided loans to the lowest levels of local governments.
 

The rural lending institutions not only proliferated, they grew far faster than their urban counterparts. While the five largest state owned banks, Bank of China, Agricultural Bank, ICBC, China Construction Bank, and Bank of Communications, grew by 270% over the past ten years, the rural banks grew at 440%. They now make up 10% of the total Chinese financial system.
 

Like other Chinese financial institutions, the rural banks lent to local governments, but ultimately to the wrong local governments. The rural cooperatives and banks provide the bulk of credit to hundreds of millions of local farmers, but they also have close ties to financially strapped local governments below the provincial level. Many of these loans were made again as part of the 2009 stimulus packages. As the loans come due, many of these smaller government entities will have difficulty repaying.
 

The problem was highlighted by a regulation issued 8th March by the China Banking Regulatory Commission (CBRC). The CBRC’s latest regulation prohibits rural banks from providing fresh funding either directly to local governments or by purchasing investment vehicles issued by them including bonds, bills or trust products. This is going to be a major problem for the local governments since many will need to refinance those loans to keep current.
 

The size of these rural lenders and their main clients increases exponentially, the probability that they will be allowed to fail. The central government would certainly bail out a large national lender. The top 30 banks might be able to rely on provincial governments. But the smallest lenders are probably out of luck.
 

But problematic loans are not the only issue that concerns rural banks. They also have problems with the other side of the equation: deposits. Qichun County is in the province of Hubei near the city of Wuhan. It is rural county and its economy is based on growing herbs. It has a population of 1.03 million, but only a fraction of the population still farms. About 80% of the working age population migrates to the coastal cities in Guangdong and Fujian. They don’t bank at the local banks in Qichun. They have debit cards issued from banks in large coastal cities, which allow them to transfer funds back home. The local banks also do not have savings books products.
 

Without a steady deposit base, rural banks have to rely on the interbank market. The rates in this market have been exceptionally volatile since the People’s Bank of China (PBOC) started tightening interest rates last year.
 

The interbank market is far more expensive for the rural banks. It is partially funded by new money market products provided by Yu’E Bao, or “Leftover Treasure”. Yu’E Bao was created by internet giants like Alibaba. It’s growth exploded. It now has 81 million depositors and Rmb 500 billion ($81 billion) assets under management. The reason is simple. It gives savers 6% far above the 3.3% capped interest provided by the state banks. Rural banks therefore can tap the interbank markets, but at interest rates that eat into their margins. They cannot take advantage of the capped rates that help subsidize the large state banks.
 

Lack of liquidity, dodgy loans and the lack of a central government guarantee is a sure fire recipe for a collapse. The question is not whether there will be more runs on small banks like Jiangsu Shenyan Rural Commercial Bank. There will be. The question is whether there will be enough of them to metastasize and affect the entire financial system.

 

(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)

User

RBI needs to review and issue additional banking licences

RBI must reconsider the present applicants and, possibly, have specific discussions in areas of operation and how soon they can achieve the goal of ensuring opening of branches and making available banking operations in small villages and towns, across the country

After a nine month wait, the Reserve Bank of India (RBI) delivered two babies in the form of approvals, for IDFC and Bandhan Financial Services to start private banks.  This is valid for 18 months within which both institutions have to comply with all the RBI formalities, as laid down, for new banks. Once these are met, a regular banking licence will (or may?) be issued by RBI, until which time, both cannot do any "banking operations" as such!
 

Effectively, two new banks with "universal" banking operations may start functioning somewhere around April 2016, give or take couple of months! 
 

IDFC (Industrial Development Finance Corporation) was set up in 1997, based on the Expert Group on Commercialization of Infrastructure Projects, by Rakesh Mohan Panel, based in Chennai, with offices now in Mumbai, Bangalore and Delhi.  During the transition process, most of IDFC's assets will be transferred to the bank, which will be called: "IDFC Bank", now that the approval has been received from RBI.
 

From what has appeared in the press, IDFC are not likely to grow the loan book in the next 18 months!  Rather, they would concentrate, in the first three years to stabilise, comply and experiment for the work ahead.  In the next three years, IDFC Bank will consolidate, learn and start to prepare for scale of operations ahead; and finally three years will be spent returning to growth and retaining it.
 

It may be recalled that IDFC issued its initial public offering (IPO) in 2005.  It employs over 500 people, and for the financial year ending March 2013 the total income is reported at Rs8,148 crore with a net profit of Rs836 crore.  The gross loan book amounted to Rs56,895 crore with gross approvals at Rs26,567 crore and a disbursement of Rs17,656 crore. It is heavily concentrated in the infrastructural development projects and operates from four main cities in the country.
 

What about the ownership composition at the moment? Government owns 17.24% in IDFC while 51.39% is held by foreign interests.  So, when the final licence to operate as a bank is issued to IDFC Bank, the stock-holding will also undergo a suitable change. 
 

In 2003-04, both Kotak Mahindra Bank Ltd and Yes Bank Ltd were licensed to operate as private banks, and, as we know them today, they are doing well. 
 

The current guidelines require new banks to set up at least 25% branches in unbanked rural locations with a population up to 9,999 people.  For a start, as far as IDFC are concerned, they have a herculean task before them; first to make a drastic change in their outlook to cater to the needs of the “aam aadmi” by going rural. Second, by retaining the parent IDFC organization, they may continue to do infrastructure financing, which involves crores of rupees, tune themselves to finance smaller operations running to just couple of thousand rupees here and there!  It will be tough going! 
 

In so far as Bandhan Financial Services are concerned, luckily, they have the inherent advantage of being the largest microfinance institution in the country with 22% market share. Since their inception in 2001, as a credit financing operator, they have enormous experience in empowering women, who form the bulk (55 lakh) borrowers, but whose loan repayment rate of 99.5% speaks well of the organisational acumen.  It appears from the press reports, that Bandhan currently sells priority sector loans to commercial banks.
 

However, the company currently borrows from commercial banks at 12.5% to 13% and lends it at nearly 23% to these women entrepreneurs’, who gladly pay this rate, considering the whopping rate of 200% to 300% charged by the exploiting moneylenders in the rural areas.  To a great extent, Bandhan has been able to reduce this menace of moneylenders in the Eastern states in the country, where they operate extensively.  Thus, as a commercial bank, they hope to obtain bank deposits at a relatively cheaper rate as this will enable them, in return, to lower their lending rates to these women, who are likely to be their main customers.
 

And yet, transfer of microfinance business to the proposed new bank is not going to be easy, according to Chandra Sekhar Ghosh, CMD of Bandhan, who hopes to achieve all the essential qualities of good banking by savings, credit, insurance and remittance.  But for Bandhan, which currently operates in 22 States and four union territories, with 12,961 employees, it will not be a difficult task.
 

RBI governor Raghuram Rajan's assurance that banking licence will now be made available on tap, and that, the rest of the applicants could reapply again for RBI to consider. This assurance may be "soothing" but does not serve the purpose, which, initially, and even now stands unchanged at making "banking service" available to one and all, particularly in rural areas. About 50% to 60% of the people in the country still do not have access to banks.  Even if applications to open accounts are made available in two/ three languages, these serve no purpose because of the literacy factor.  Most money lenders in rural areas, apart from charging exorbitant rates, also get land-ownership documents "signed" by obtaining thumb prints (whoever has this little benefit of ownership), and for rest of the lifetime, the borrower only pays this interest, with loan capital remaining intact!
 

Anyway, in arriving at the conclusion that both IDFC and Bandhan are the most suitable candidates to set up banks, obviously, the Jalan committee ought to have employed a system of grading (marks?) in assessing the applications.  We do not know the details, but, whatever is the methodology applied, it would appear that there would be at least a few more in the first five or seven "prospective" candidates who are also just as qualified, in terms of their integrity, approach and vision.
 

While, IDFC has literally a 9-year programme ahead to be able to reach its targeted clients; Bandhan has already a strong base of 55 lakh borrowers in rural areas who repayment track record is admirable.  So, Bandhan has much better chance to succeed in making it possible for "banking facilities" as such to reach rural folks, sooner than later.
 

Based on the above premise, RBI must reconsider the present applicants and, possibly, have specific discussions in areas of operation and how soon they can achieve the goal of ensuring opening of branches and making available banking operations in small villages and towns, across the length and breadth of the country.
 

If five institutions are selected, simply in order of grades, with IDFC and  Bandhan being No: 1 and No: 2, RBI could pick No: 3 to No: 7 and make this offer, there would be a giant step forward in making true the hope of banks reaching the rural areas in the next three years.  If the intentions are to go through such longish processes, it will be probably another five-seven years before new banks can come into operation.
 

RBI needs to rethink on these issue, and they have economists and experts who can modify such proposals to suit the national needs! 
 

India Post has a terrific advantage of being everywhere, but does not have the required banking expertise.  Why not they be linked with someone like State Bank to be their mentor and after a 7/10 year "understudy'' experience become independent operator?

 

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)

User

COMMENTS

Dr Anantha K Ramdas

3 years ago

Mr Shah: thanks for your understanding and support. You will agree that if licences are now available on "tap", why not consider the rejected applicants in the first place, as long as they have the basic qualities and integrity to set up banks. Otherwise the whole process will take months on end, and there will be accusing fingers that partiality was done to this or that person/group etc.

If 5 more are licensed to operate, we have better chances for knowing if these applicants are really prepared to go to rural areas and set up banks and making services available to one and all.

Our taps are known to dry all over the country! Give a few more equal opportunities with IDFC and Bandhan and let us see if they can perform.

Let's focus on reaching every village or twon with 9999 people.

As you said, may be the new govt in the centre will have a review of the applicants and decide in one sweep, if the intentions are really to serve the people and eliminate the blood sucking moneylenders!

Suiketu Shah

3 years ago

Agree 100% with the author.Granting to IDFC and Bandhan is not only enough but there are possibly better candidates capable of running better banks who have so far missed out.I suspect we wl head about new license later this yr once BJP comes into powder 20 May

Aadhaar: If you have tears, why shed them for the UID?

When asked how Nilekani-led UIDAI could let foreign companies get their hands on the data, we are told that they had no means of knowing that they are foreign companies! Why, then, are there those who mourn the disintegrating and, hopefully, the demise of this project?

Here is a question for those who retain their faith in the unique identification (UID) project: what is it about the project that has them believe that it should, somehow, be salvaged?
 

In December 2011, the parliamentary Standing Committee on Finance (SCoF) returned the National Identification Authority of India Bill 2010, and recommended that the UID project be sent back to the drawing board. On 23 September 2013 the Supreme Court directed that no one may be denied any service only because they do not have a UID number; and, when the order was deliberately disregarded, the Court ordered the government to withdraw the instructions that made the UID mandatory. That was on 24 March 2014. On 21 February 2014, the Petroleum Ministry delinked the UID from LPG subsidy. That is, all three organs of state – the Parliament, the judiciary and the executive - have been remarkably unenthusiastic about this project.
 

The project was marketed as an innocuous game changer. It would provide an identity to every person, especially the poor; and that would lead to plugging leakages and curbing corruption. The touching innocence of this claim has not managed to keep off questions about the consequences of databasing an entire citizenry, the implications of not having a law that covers the project, privacy and personal security, surveillance, data security, flawed processes, unrestrained outsourcing, the unseemly ambitions it provokes in police agencies to get the data into their hands ….. the list keeps growing.
 

By now it is plain that the Unique Identification Authority of India (UIDAI) has had little patience with either process or law. Here are some illustrations:
 

The UIDAI was not established to create a database of its own. It was “to limit its activities to creation of the initial database from the Electoral Roll/ EPIC data and verification and validation of the same through BPL and PDS data and updation of electoral rolls.” This was the decision of the EGoM, which met on 4 November 2008 to decide what would be in the notification dated 28 January 2009 that set up the UIDAI. There are multiple databases within the government that carry identity information, and the UIDAI was to work at building a cleaned up identity database from existing databases. The EGoM was categorical: that the “UIDAI may not directly undertake creation of any additional database….”
 

Yet, once Nandan Nilekani had been appointed Chairperson of the UIDAI in July 2009, a Cabinet Committee on the UID was formed with the Prime Minister as the Chairperson, which gave him the go ahead to create his own data base, independent of other governmental data bases. First, it was allowed 100 million enrolments; then 200 million. Then in an inexplicable, and still unexplained, twist after the Home Minister had found their process faulty and unreliable, it was extended to 600 million. In the first four years, any time that either Mr Nilakeni or RS Sharma, the UIDAI’s first Director General, was asked where they got the legal authority to take the personal data of people, they would point to the 2011 notification as the source of legality for this exercise. This was, of course, not true at all. They were in fact breaching the boundaries the notification had set for them. It is also interesting that Mr Nilekani had started proclaiming, very early in the exercise, even before he had been given the mandate, that the UIDAI would enroll 600 million people by 2014.
 

Mr Nilekani was a man in a hurry. What resulted was rampant outsourcing, untested processes (including the introducer system), brushing aside concerns about the possibilities and improbabilities of biometrics across a population and across time, and doing away with the imperative of legality. He says he has got his 600 million people. May be. And, again, maybe not. But should such callous discarding of the process and law not matter because it was Nandan Nilekani? Should corporate icons not be restricted by law or process? These are not just rhetorical questions, but arise from the extraordinary treatment given to a collateral entrant into government.
 

Biometrics
 

Nandan Nilakeni used three terms to describe the UID project – unique, universal, ubiquitous. Uniqueness was dependent on biometrics. The decision to use fingerprints and iris was made before the UIDAI had any means of knowing whether biometrics could work in India. This is what they said in the “notice inviting applications for hiring of biometrics consultant” in January/ February 2010 after they had decided on fingerprints and iris: “While the National Institute of Standards and Technology (NIST) documents the fact that the accuracy of biometric matching is extremely dependent on demographics and environmental conditions, there is a lack of a sound study that documents the accuracy achievable on Indian demographics (i.e., larger percentage of rural population) and in Indian environmental conditions (i.e., extremely hot and humid climates and facilities without air-conditioning).” In fact, it went on, “we could not find any credible study assessing the achievable accuracy in any of the developing countries.”
 

Two years later, Mr Nilekani was to say, in his talk at the World Bank in April 2013: “nobody has done this before, so we are going to find out soon whether it will work or not”.
 

But Brutus is an honourable man.
 

If the UID number will be on a range of databases, and it can act as a bridge between different silos of information, what does it do about intrusive curiosity? This is how Nandan Nilakeni thinks the UID number should be deployed. In a conversation with Vinod Khosla, and as reported on the NASSCOM website, he said: “There can be an entire Aadhaar- based reputation system in the country”, adding that “besides a credit history, the UID number could also help build health or skills records of Indians”. And this is just the beginning.
 

The UIDAI says enrolment is `voluntary’ while working to make it mandatory – that will swell its data base, fast. It has gone to the Court in the cases that challenge the project and iterated and reiterated the claim that it is voluntary; but, when the Court said, okay, then we will just say that it is voluntary, the UIDAI pleaded with the Court that agencies be allowed to `insist’ on the UID.
 

The UIDAI sounds like it will be providing a service, but it is openly pursuing a revenue model which will profit from our data. There is talk of security of data; but the data is handed over to be managed by companies that are close to the CIA, Homeland Security and the French government. And, when asked how they could let foreign companies of such provenance get their hands on the data, we are told that they had no means of knowing that they are foreign companies!
 

Why, then, are there those who mourn the disintegrating and, hopefully, the demise of this project?

 

You may also want to read…
 

UID/Aadhaar series

 

Aadhaar: Private ownership of UID data- Part I

 

Aadhaar: Who owns the UID database? –Part II

 

(Dr Usha Ramanathan is an independent law researcher and has been critically following the policy and practices of the UIDAI since 2009)

User

COMMENTS

Mahesh S Bhatt

3 years ago

Our lawmakers have so many laws & so poor implementation records that courts are having pile up backlog of more than 30 years across India.

Friends this is blatant Security violation but Indian Telecom sector doesnot have good safety security measures to protect ISP's & Database servers from hacks.

Google cooly captures our street details & uploads on thier GPS services which we shall pay as our cops are busy collecting haftas / towing vehicles unreasonably.

Simple law on fine on spitting /urination should have been addressed by local municipal sanitation support like waste paper basket/toliet's.

Mumbai Municipality claims to have 1500 crores reserves but no MLC thinks of the same.Sulabh Sauchalaya is good private NGO bearing the load & its wilting.

Simple suggestion every bridge should have 2 sanitation toilet's.

M R BANTWAL

3 years ago

Mr Nandaan Nilekani has spent few crores on making UID Numbers. Indeed it is desastrous, The Government and Moily Petroleum Minister has rolled back the subsidy on LPG, after giving 12 cylinders from 9 i a year. What is the benefit to the Government. Setting up committees and eGoms and then cancelling them. Those committees do not meet once during their tenure of 3 or 6 months but they earn money and go home happily. The the Govt, increases the prices of everything to earn more revenue to the Govt to spend it lavisgly

Mandar Kulkarni

3 years ago

UID Aadhaar has been a disaster for India. It does not serve any national interest, it serves interests of foreign intelligence agencies. Aadhaar is threat to national security. It is illegal and has no scientific/technological foundation to it. It has been a huge wastage of money so far. UPA government and all those responsible for imposting this scheme on us should be made accountable to recover some of the losses. #SayNoToUID . Next govt is likely to scrap this project completely by removing any budget allocated to this.

Korath

3 years ago

When most of the 3 lakh crore subsidies are leaked out the author has no issue. However, she is bothered about 99.9999% plus accuracy of Aadhaar. Her question is why is Aadhaar not 100% accurate? She chooses different scales for different identities by design or by default? Doesn't have any problem with Asaram Bapu having hundreds of Bank accounts? But the author is a honorable woman.

REPLY

David Moss

In Reply to Korath 3 years ago

1. Korath says “When most of the 3 lakh crore subsidies are leaked out the author has no issue. However, she is bothered about 99.9999% plus accuracy of Aadhaar. Her question is why is Aadhaar not 100% accurate?”.

2. Nice try, Korath, but no cigar.

3. Usha Ramanathan has said nothing of the sort. Your claim is false.

4. You allege that Aadhaar is “99.9999% plus” accurate. What does that mean? As it stands, nothing.

5. Let’s be helpful. Let’s try to give your statement some meaning.

6. Aadhaar promises unique identification. Are you saying that it has largely achieved that but, in this imperfect world, there might be a tiny number of duplicates on the population register? That would be meaningful. But impossible to prove. India would drown in a sea of false positives in the attempt.

7. The sea-of-false-positives argument comes from Professor Daugman, the inventor of biometrics based on irisprints. He is, naturally, a supporter of biometrics technology. But even he says forget trying to prove uniqueness, it’s impossible.

8. Alan Gelb and Julia Clark of the Center for Global Development are supporters of biometrics and, specifically, supporters of Aadhaar, please see ‘Performance Lessons from India’s Universal Identification Program’, http://international.cgdev.org/sites/def...

9. Even they say that UIDAI had to “relax” the false negative identification rate in order to keep the number of false positives down, below drowning level (footnote 7, p.5). UIDAI should change its name to MIDAI, the Multiple Identity Authority of India.

10. So that can’t be what you mean when you say that Aadhaar is “99.9999% plus” accurate. You can’t mean that almost every record on the population register is unique. It’s not just that the figures haven’t been independently audited. They can’t be audited. It would take too long.

11. Aadhaar also promises that it verify people’s identity reliably when needed, e.g. when claiming food benefits, or fuel or employment. Perhaps, Korath, you are saying that Aadhaar will be very accurate when it comes to verification. That would be meaningful. But how do you know?

12. The only way to keep false positives down is to let false negatives rise. That trade-off is accepted throughout the biometrics world. If UIDAI have been “relaxing” false negatives to keep false positives down to near zero, then you can expect false negatives to go through the roof. Benefit claimants will be told falsely by the biometrics verification system that they are not who they say they are. That’s a false negative. That’s no food, no fuel and no job.

13. What does “through the roof” mean? The UK Passport Service Biometrics Enrolment Trial suggested that the rate of false negative verification is about 20% if you’re using flat print fingerprints. The US Department of Homeland Security relies on flat print fingerprints in its US-VISIT border protection system and about 20% of primary inspections have to be backed up with secondary inspections. It’s not much to go on. The biometrics industry doesn’t like publishing performance figures. But it looks as if about one-in-five verification attempts will fail if you rely on flat print fingerprints. That’s 20% of the benefits population ready to riot thanks to Aadhaar.

14. Aadhaar promises to use irisprints as well as fingerprints. We used to use irisprints at UK airports for border control. We’ve dropped them. Too expensive? Too slow? Too unreliable? We were never told but, one way and another, we don’t use irisprints any more. Will the same happen in India? It could.

15. Korath, please read ‘Fundamental issues in biometric performance testing: A modern statistical and philosophical framework for uncertainty assessment’, http://biometrics.nist.gov/cs_links/ibpc...

16. There you will find that biometrics is “out of statistical control”. Which means that it is not a science. Which means that its use is theatrical. Security based on mass consumer biometrics is security theatre. Food aid based on mass consumer biometrics is food aid theatre. Etc ...

17. The Head of the UK Border Force gave evidence to Parliament on 15 November 2011, http://www.parliamentlive.tv/Main/Player... starting at 12:18.

18. He said that flat print fingerprints were the ninth and lowest priority for his staff when verifying a traveller’s identity and when there are long queues which threaten safety and public order at airports and seaports it is sensible to stop using fingerprint procedures.

19. He lost his job. For not sticking to the security theatre script.

20. Aadhaar may be entertaining theatre. But to claim that it is “99.9999% plus” accurate is meaningless.

MDT

In Reply to Korath 3 years ago

Korath,
Thanks for your comment.
Why is a biometric database required for cash transfer of subsidies? Hasn’t the US been crediting unemployment dole into SSN accounts, which have no biometrics, for over 70 years? UID is for all residents. Subsidies are for citizens. How would a government agency disbursing subsidies or a bank know whether a person with a UID number is a citizen or not?

Now, WHY all this sudden rush for Aadhaar linked subsidies?
This is because, direct cash transfers provide political mileage to rulers! According to a study by the World Bank (http://www.moneylife.in/article/direct-c... ) , voters respond to targeted cash transfers and these transfers can foster support for incumbents, thus making the case for designing political and legislative mechanisms that avoid successful anti-poverty schemes from being captured by political patronage.

“In theory, anti-poverty programs such as conditional cash transfers (CCTs) may play a role in influencing individual political participation—in the form of voting—and preferences, strengthening democratic representation but also producing electoral rewards. For instance, by partly changing the economic circumstances of households, transfer receipts could persuade participant households to exercise their right to vote,” the study ‘Conditional Cash Transfers, Political Participation, and Voting Behaviour’, it says.

http://www.moneylife.in/article/is-aadha...

Regards,
MDT

Korath

In Reply to MDT 3 years ago

The subsidies cannot be leaked as it is targeted and reach the intended beneficiary. One identity one benefit. No impersonation possible.

Korath

3 years ago

Fingerprinting has been in use by many agencies in the past, for example , the motor vehicle department, passport , Visa, RSBY etc. But no issue was raised by the honorable author. When UIDAI uses biometrics to empower our billion plus citizens and save them from impersonation, then she has problem. But Author is a honorable woman.

REPLY

MDT

In Reply to Korath 3 years ago

Korath,
Thanks for your comment.

The government claims that apart from providing an identity, the Aadhaar numbers would enable better delivery of services and effective governance. Would this imply that someone from Tembhali village in north Maharashtra's Nandurbar district will automatically receive food under the public distribution system (PDS), when the middlemen have looted the food before it can even reach the shop?

What's more serious is that the government does not say anywhere that the Aadhaar numbers will be issued to the citizens of India. Instead, it mentions that the Aadhaar numbers will be issued to "individuals residing in India and to certain other classes of individuals". This means that immigrants from neighbouring countries, residing illegally in India, would be able to procure such numbers too, akin to the ration card (PDS Card), and become citizens of the country.
http://www.moneylife.in/article/nothing-...

But may be those interested souls who try to lambast anyone raising valid questions about UIDAI, Nilekani and Aadhaar are honorable human beings!

Regards,
MDT

Anil Nair

3 years ago

The damage has been done, the only way to stop any thing more is by just erasing the data, before it falls into wrong hands.

REPLY

Sandeep

In Reply to Anil Nair 3 years ago

I am assuming you'll never use any smartphone that has finger print scanner as a feature as someone may misuse your bio-metrics and you'll never use any credit card because credit card processing company may be outside India and you'll never wath any smart TV as you can be tracked what you watched at what time and you'll never buy a smart car that is GPS and WiFI enabled because your movement can be tracked, wake up bro!

MDT

In Reply to Sandeep 3 years ago

Sandeep,
Thanks for your comment. However, we are finding it difficult to digest that somebody like you going on bashing each and every article published at Moneylife. That too by claiming and providing links of UIDAI, which always has shied from disclosing information even under the RTI.
Any vested interest, Sandeep, that may have been hurt due to the truth coming out in the open?
Coming back to your question (although these are the exact set of question all newbies from UIDAI try to put time and again), finger print as used in smart phone (iPhone to be specific) is just smallar part of biometrics that is being collected illegally by UIDAI agents. For others like Credit card, Smart TV, smart Car, GPS, I have the choice to chose or reject. In case of UIDAI, there is no choice. It is mandatory to give finger prints of all 10 fingers and iris scan of both eyes. So therefor, if my smart phone or credit card is compromised, I can "cancel" it and get a new one. Is this the same for Aadhaar? Can you cancel and get a new Aadhaar? Is there any provision for cancelling it on the UIDAI site that you always show as the 'gospel truth'?
Regards,
MDT

Sandeep

In Reply to MDT 3 years ago

MDT

now you have come to the point, vested interest??!! how about Moneylife??
No one with vested interest will ever love any unique identity management system, let alone aadhaar or NPR...no thief likes the bulb at street light, same goes with people having vested interests, they don't want any system where they can be tracked by a reference no. like UID/NPR no.
vested interest all I have is I want to see how soon ghost, duplicate and middlemen beneficiaries gets eliminated from system and there is fear of being caught/tracked down if you commit anything wrong/against the law. Just an example if a rapist has a fear that his semen sample (DNA mapping…future of biometrics) can be identified/matched against a database that will show up his profile with home address, will he dare to open his zip?? Embrace technology, don’t embarrass it.
I am not newbie to technology/UID and no way linked to UID as well. It's just that I have been in the field for almost 10 years and do understand the concept behind relational database
just like if you want to use Credit card, Smart TV, smart Car, GPS, you also have a choice to not get UIDAI/NPR. time you used GPS, the time you watched that smart TV, the time you used that credit card that history is there forever to stay, you don't have right to delete that. just stay home be happy!! time you dump technology, it dumps you!!
Aadhaar/NPR cannot be replicated that's why vested interests are crying since 2009??
comment about bashing each article on ML, I just commented 1-2 artcile; at max 3 I guess and you have starting singing that I have been commenting every article, just imagine what ML has been doing since Aadhaar/NPR has started, hiring a team to manipulate every content against aadhaar??? if you don't like my comment I don't mind saving my time and ignoring ML for good...

Sandeep

3 years ago

Here comes the next installment of UID bashing article by moneylife....sometime I just wonder would you dare to deny finger printing if you are in queue for VISA at embassy where it's for sure that you're data will go to foreign country

REPLY

Anil Nair

In Reply to Sandeep 3 years ago

So, u seem like travelling a lot. Have you ever been stopped and checked intentionally just because you belong to a country where every identity is on sale by culprits. You can own a Aadhaar card for FREE!.. That's what the Govt. said..!

Sandeep

In Reply to Anil Nair 3 years ago

when every ID is for sale that's when something like UID/NPR becomes more important. I am glad you answered your own question. Aadhaar is still FREE if you go by proper channel.

chan

3 years ago

Please dispose off UIDA as early as possible. I think this article should be last nail on the coffin of UIDA. Please don't write anything about Nilekani. After all, he is holy cow!!!

David Moss

3 years ago

"... when asked how they could let foreign companies of such provenance get their hands on the data, we are told that [UIDAI] had no means of knowing that they are foreign companies ..."

No means of knowing?

1. Companies have IDs. It's quite easy to establish whether they are foreign.

2. Mr Nilekani is a man of the world. He must know that Safran was French and that L-1 Identity Solutions was American. Everyone else knows that.

3. I told him on 4 March 2011, when I sent him a pre-publication copy of http://dematerialisedid.com/BCSL/Drown.h...:

"From: David Moss [mailto:[email protected]]
Sent: 04 March 2011 15:43
To: Nandan Nilekani
Subject: Request for comment in advance of press release

Nandan Nilekani
Chairman
Unique Identification Authority of India

Dear Mr Nilekani

I append below my review of UIDAI's proof of concept trial report.

I intend to base a press release on it in 10 days time, on Monday 14 March 2011.

Any response from UIDAI before that would be much appreciated,
particularly if it is to point out errors in my sea-of-false-positives argument.

I hope you find the review interesting and useful.

Yours sincerely
David Moss"

David Moss

3 years ago

"... when asked how they could let foreign companies of such provenance get their hands on the data, we are told that [UIDAI] had no means of knowing that they are foreign companies ..."

No means of knowing?

1. Companies have IDs. It's quite easy to establish whether they are foreign.

2. Mr Nilekani is a man of the world. He must know that Safran was French and that L-1 Identity Solutions was American. Everyone else knows that.

3. I told him on 4 March 2011, when I sent him a pre-publication copy of http://dematerialisedid.com/BCSL/Drown.h...:

"From: David Moss [mailto:[email protected]]
Sent: 04 March 2011 15:43
To: Nandan Nilekani
Subject: Request for comment in advance of press release

Nandan Nilekani
Chairman
Unique Identification Authority of India

Dear Mr Nilekani

I append below my review of UIDAI's proof of concept trial report.

I intend to base a press release on it in 10 days time, on Monday 14 March 2011.

Any response from UIDAI before that would be much appreciated,
particularly if it is to point out errors in my sea-of-false-positives argument.

I hope you find the review interesting and useful.

Yours sincerely
David Moss"

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)