MONEYLIFE IMPACT: Govt says Aadhaar authentication not mandatory for banks
Moneylife Digital Team 13 December 2013

Replying to a question raised by Rajya Sabha MP Rajeev Chandrasekhar, on behalf of several activists and consumer organisations, the ministry of finance said RBI has set aside its diktat making Aadhaar-based authentication mandatory

The government has informed Parliament that Reserve Bank of India (RBI) has set aside its earlier decision of Aadhaar authentication using biometrics saying it is not mandatory upon banks to adopt Aadhaar as additional factor of authentication. The RBI has now notified that banks can continue with the EMV Chip and Pin technology for securing the card present payment infrastructure.


Rajeev Chandrasekhar, member of Parliament (MP) had agreed to raise the question in Rajya Sabha after Moneylife Foundation, several consumer and non-governmental organisations (NGOs) and activists sent a memorandum to RBI governor Raghuram Rajan over the issue.


Earlier in September,  Moneylife Foundation hosted a round table  with leading organisations such as All India Bank Employees Association (AIBEA), All India Bank Depositors Association (AIBDA), Council for Fair Business Practices (CFBP), V Citizens Action Network (V-CAN), Consumer Education and Research Centre, Ahmedabad (CERC), India Against Corruption (IAC), Forum for Fast Justice (FFJ), Forum of Free Enterprise (FFE), Nagrik Chetana Manch (NCM), All India Business Council (AIBC) and Women Graduates Union, Mumbai (WGU), as well as concerned citizens to discuss the issue of Aadhaar enabled ATMs and PoS.


The key issue during the round table was: Who will bear the huge technology cost involved in the project. Activists feared that the banking system was being used by the UIDAI (Unique Identification Authority of India) to create nationwide infrastructure of biometric readers and scanners at the cost of bank consumers. Further, UIDAI plans to charge a fee for each Aadhaar authentication, which would also have to be borne by consumers.


Among the issues raised at the discussion was the fact that biometric-enabled ATMs had been launched with much fanfare between 2004 and 2007 but were an unmitigated disaster. Most participants felt that there ought to be a pilot project to justify the technology, safety as well as the bandwidth required for the UIDAI authentication, before such a big cost burden was imposed on the banking system.


The group then together drafted and sent a memorandum to RBI governor Dr Raghuram Rajan.

Chandrasekhar, who is also a member of the Standing Committee on Finance, then requested Prime Minister Manmohan Singh to relook at the RBI's proposal on Aadhaar authenticated biometric automated teller machines (ATMs). In the letter sent to the PM, finance minister P Chidambaram and chairman of Standing Committee on Finance, he wrote, "Public policy towards financial inclusion should be devised intelligently with objective of lower banking costs and increased access for consumers and not using ill-conceived, brute force methods involving significant additional spending and increase in costs to consumers and please make no mistake, these costs will be passed on by banks to consumers."


Subsequently, Chandrasekhar raised the issue in the Parliament. In its reply in the Rajya Sabha, the ministry of finance said it is not expected that huge capital investment will ensue immediately to the banking system for this replacement. It is expected that enhanced benefits will largely compensate the expenditure incurred in putting this infrastructure in place, the ministry said.


The ministry, however, said that Reserve Bank has already notified the banks that in respect of cards, not specifically mandated by RBI to adopt EMV norms, banks may take a decision whether they should adopt Aadhaar as additional factor of authentication, or move to EMV chip and PIN technology.


Chandrasekhar had asked the ministry, and also raised the issue to RBI governor Raghuram Rajan on 10th October, whether government was proposing to direct all banks to absorb these increased cost of banking due to Aadhaar requirements, and not to pass these costs to consumers in order to safeguards their interests. Chandrasekhar said even earlier experiments with Aadhaar-based biometric ATMs during 2004 and 2007 had failed, as it proved to be a high-priced proposition for implementation.


"While there is no denying that a stronger authentication mechanism to safeguard consumers’ interest is needed, such a proposal without adequate capital can result in a high cost burden for our banking system,” he said. "I have urged the government to conduct adequate feasibility tests before taking a call on any Aadhaar programmes,” said Chandrasekhar.


It is important that government reconsider the proposal in the interest of India and its people; weigh the outcome; examine the consequence, and then take a decision.


Various Aadhaar programmes have already seen thousands of crores of taxpayers’ money being spent aimlessly without proper understanding of the issue, he said. "There is neither a parliamentary debate —or approval —nor any effort by the government to have a public consultation in order to ascertain whether Aadhaar series of measure is beneficial to the nation. Aadhaar programme is being funded using public money, and needs to be reviewed immediately. The programme’s objectives should be clearly defined given the fact that Supreme Court order recently decided not to make subsidies conditional upon Aadhaar,” he said.


The fact that there is no clarity over Aadhaar programme suggests that we need efforts to build a coherent mechanism by which we address critical issues pertaining to Aadhaar. Also lashing out at the manner the government was working to implement Aadhaar programs, Chandrasekhar said, “it is a matter of concern knowing that Aadhaar numbers are being issued to people irrespective of whether they are Indian citizens or not, thus making non-citizens eligible for taxpayer-funded subsidies.”


"Besides, this widespread allocation of Aadhaar numbers is serving as an incentive to attract illegal immigration into the country due to the easy access to subsidies that the Aadhaar programme allows. Also Aadhaar programme requires citizens to give out personal information, which infringes upon their right of privacy and has the potential to be misused,” he said.


Chandrasekhar also asked whether the government was aware that RBI’s directive to banks for providing a mechanism for Aadhaar authentication in all new credit swipe machines and ATMs using biometrics will increase cost of banking for consumers. In its reply, the ministry for finance told the Parliament that RBI has "directed only at new acceptable infrastructure and not large scale replacement of all existing infrastructure in a time bound manner.”


Moneylife has been pointing out that this new directive (from RBI) 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 point of sales (POS) 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).


Last month, the RBI advised banks to choose either EMV chip and PIN or Aadhaar’s biometric validation as additional factor for authentication and securing the card present payment infrastructure. However, several mainstream media reported that RBI has asked banks to adopt Aadhaar authentication only.


However, the RBI advised banks to keep their new card present infrastructure enabled to use both EMV chip and PIN and Aadhaar (biometric validation) acceptance. It may be noted that EMV cards are 'smart' cards that have an embedded chip while PIN authentication involves the card-holder to punch in a secret code on the card-swiping machine, for each transaction.


Interestingly, about 90% of the existing POS terminals in the country, managed by 21 acquirers (among them Axis Bank, HDFC Bank and ICICI Bank), can accept EMV chip cards and PIN. However, following RBI directive banks will have to scrap the whole infrastructure and buy new one with biometric readers, which costs a bomb.


However, as reported by Moneylife, bankers are set to oppose the RBI directive that all new ATMs and PoS machines should be tailored to accept Aadhaar.

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