959 - Aadhaar leading to surge in Bank Accounts - WAT Blog

By venu achalla • December 10, 2010

The main force behind Aadhaar is to provide residents with a means to easily and effectively establish their identity to any agency without having the need to produce multiple identity documents. Aadhaar would thus be critical to the Government in achieving its goals of Social and Financial inclusion. Well, according to Nandan Nilekani, chairman of Unique Identification Authority of India (UIDAI), Aadhaar is well-on-track to achieve this.

In an event organized by Indian Institute of Banking and Finance, he said that there is a massive explosion for bank accounts among people enrolling for Aadhaar or the unique IDs. In fact, if the current pace of enrolments is continued, then there is a real possibility that the number of bank accounts issued in the next four years will exceed the number of accounts banks have issued since India’s independence.

He also expressed his optimism about receiving Finance Ministry’s consent on his proposal to make the unique identity number equal to KYC (know-your-customer) norms for the village accounts. KYC norms at present act as the biggest entry barrier for urban and rural poor. If KYC regulation is updated to include Aadhaar authentication, it could turn out to be a blessing for financial service providers.  This will enable UIDAI to electronically pass the resident’s consent along with the demographic information to banks for opening the bank account.  This can greatly ease the account opening process with no need for physical documentation. This would not only reduce the customer acquisition cost but would also fasten up the process, while still ensuring strict check on customer’s identity due to the biometric authentication done through UIDAI.

Aadhaar project is already being implemented as a pilot at Sindhudurg in Maharashtra, where about 2 lakh people have been issued with UID numbers. The pilot project also works as a micro-ATM card, wherein a villager can approach a banking correspondent, who in turn  dispenses the cash to the third party on successful verification of Aadhaar records.

The financial services is getting disaggregated with newer specialized participants constantly entering the value chain. Still there are many obstacles that the banks face in offering financial services to the poor, especially in the rural and remotest parts of the country.  The Aadhaar initiative started by the Government is one of the highly ambitious projects undertaken to remove such obstacles. The scale of the initiative is unprecedented and it will involve active participation of Central and State Governments as well as public and private sector agencies across the country. UIDAI maintains that the pilot project has been a success and that it has reached a tipping point with the launch of the project. Lets hope that same is the case with national implementation as well. What are your views on the Aadhaar initiative?