RBI validates e-KYC through Aadhaar

This may reduce the risk of identity fraud and document forgery, paving the way for a paperless way of fulfilling KYC norms

The Reserve Bank of India has accepted an electronic KYC, based on the Aadhaar or Unique Identification (UID) number, as a valid way to open a bank account.

This could reduce the risk of identity fraud and document forgery, paving the way for a paperless way of fulfilling the know-your-customer (KYC) norms.

In a notification on Monday, the central bank said an e-KYC was acceptable under the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. Banks may open a new account by taking a person's Aadhaar number and biometrics. Once matched, the demographic data, including identity and address proof stored with the UID's central registry, can be accessed by the bank concerned to complete the verification.

A bank will need to take "explicit consent" of the person concerned to "release her or his identity/address through biometric authentication to the bank branches/business correspondents," RBI said.

A P Singh, deputy director general of the Unique Identification Authority of India (UIDAI) said the move would help the banking and telecom sectors the most. These would save on the huge cost of storing and verifying the documents in question, along with the obvious advantages of establishing an audit trail and reducing document fraud. The department of telecom would also have to, first, notify an e-KYC as a valid verification process for new telecom connections.

"Since RBI has approved it, we're hoping other regulators such as the Securities and Exchange Board of India (Sebi) also allow e-KYC for other financial transactions," said Singh.

Business Standard had reported in July on a division regarding whether e-KYC was allowed under current law. The matter was referred to the law ministry. Last month, the ministry had approved, as it felt the Information Technology Act considered electronic documents at par with physical ones. The finance ministry had then written to RBI and to other regulators such as Sebi to issue directives for financial companies to start accepting e-KYC.

According to the RBI notification, banks will have to sign an agreement with UIDAI to access the e-KYC service, deploy hardware and software, develop a software application and define a procedure for obtaining customer authorisation fot UIDAI to share the data with the bank.