How Aadhaar E-KYC Is Causing 'Financial Death' of Poor People
Moneylife Digital Team 18 October 2024
Jharkhand-based Ashok Parhaiya was happy when his three children got scholarships. However, his happiness vanished when he found that the bank accounts of his children were frozen for want of know-your-customer (KYC), mainly Aadhaar e-KYC. He is running around and spending money to solve the problem, without success. When Somwati Devi found her account was frozen, she visited the bank branch several times for e-KYC for more than two years. Sangeeta Devi cannot get Aadhaar cards for her children because she has no money to pay the bribes and her husband's bank account is frozen for want of e-KYC. 
 
These are just a few examples shared on X by noted activist Jean Dreze who has spent decades working with India's poorest people. "In a quick survey of 72 households in three small villages of Latehar district, we found that nearly 40% had at least one frozen bank account. In most cases, this was due to KYC problems. One possible explanation for this epidemic is that ten years on, KYC is due for all the Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts opened in 2014 – tens of millions of them," he told Moneylife
 
"According to the local bank manager, all Aadhaar-linked accounts have to go through KYC (process) again. For poor people, KYC formalities can be excruciating. They require biometric authentication and full consistency of demographic details between Aadhaar cards and bank accounts. When banks are overcrowded and understaffed, a successful KYC application can take weeks, if not months. Even after that ordeal, the customer is at the mercy of the bank for timely reactivation of the account. Freezing their accounts in the meantime is a colossal injustice," Mr Dreze added.
 
 
"A quick visit to Chhattisgarh suggests that the situation is much the same there," he said while sharing a testimony of one Injoriya, a senior citizen, who is finding it difficult for over a year to withdraw money from her pension account.  
 
While Shanti says she 'lost hope' of seeing the money she earned from the National Rural Employment Guarantee Act (NREGA) work and selling tendu leaves, after multiple costly trips to the bank, Rani Kondi, who cannot hear or speak, is unable to withdraw her pension money from her Jan Dhan account due to KYC issues. 
 
 
 
Mr Dreze urged the Reserve Bank of India (RBI) to look into this KYC crisis.
 
While most of the cases Mr Dreze shared are related to e-KYC in State Bank of India (SBI), he says the problem is with almost all rural branches of every State-run bank. 
 
On 28 August 2014, amidst much fanfare, prime minister (PM) Narendra Modi launched the Pradhan Mantri Jan-Dhan Yojana (PMJDY) to extend formal financial services to the financially excluded population. 
 
Rural and economically backward Indians were asked to open Jan-Dhan accounts on the promise that their sole identification—the Aadhaar card issued by the UIDAI—was adequate. Banks were given targets to open PMJDY accounts and they achieved the targets by opening accounts based primarily on Aadhaar cards without verification or authentication. 
 
As per RBI norms, banks must adopt a risk-based approach for periodic updation of KYC. For high-risk customers, banks can update KYC at least once every two years. For medium-risk customers, updating KYC should be done once every eight years; for low-risk customers, updating KYC needs to be done once every 10 years from the date of opening the account or the date of the last KYC update. But this is just one part of the problem.
 
In an article in 2018, Mr Dreze wrote, "A myth has been created that Aadhaar enabled millions of people to open PMJDY accounts within minutes, using biometric authentication. In fact, most of these accounts were opened without biometric authentication by seeding Aadhaar numbers from Aadhaar cards or even second-hand information. Biometric verification (in the form of 'e-KYC') was imposed later on and became a serious ordeal for poor people. Failure of e-KYC often leads to the discontinuation of benefit payments or to people being locked out of their accounts, temporarily or permanently." (Read: How KYC Freeze of the Jan-Dhan Account-holders Is Destroying the Lives of the Poor)
 
The second and most frustrating part for many PMJDY account-holders is Aadhaar e-KYC. The unique identification authority of India (UIDAI) provides an Aadhaar number to anyone who is a resident of India, but it has no idea about the genuineness of documents submitted by them to obtain the number. As Moneylife has repeatedly pointed out, UIDAI does not verify the documents.
 
Further, the last-mile data entry in India is so poor that it leads to glaring errors in the spelling of names across different certificates and mistakes in date of birth and other demographic details of people. 
 
In addition, the problems with biometric authentication, especially for those with calloused and work-worn hands, is well known. 
 
Yet, UIDAI succeeded in persuading RBI to accept e-KYC or remotely using information associated with an Aadhaar number as KYC, claiming that e-KYC brings scale to the ease of onboarding customers. 
 
Mr Dreze says, "Many banks used the 'ultimatum method' for e-KYC compliance. They set a deadline and simply blocked accounts en masse when people missed the deadline. The problem was compounded due to inconsistencies between the Aadhaar database and the bank database. The only way to get their account unlocked was to resubmit original documents, sometimes providing new documents like a PAN card. At every step, accounts were frozen with abandon whenever people needed to be 'nudged'." 
 
In addition, there is a lack of proper infrastructure and internet bandwidth to carry out the e-KYC at bank branches in rural areas. 'Server down' or 'No network' are the two most common causes customers face in these branches. Add to this, lack of manpower and you will realise why a customer needs to visit the branch repeatedly for any work. 
 
Despite being aware of the fact that not all Aadhaar numbers were paired with the personal information of their holders, the comptroller and auditor general (CAG) says UIDAI has yet to identify the exact extent of a mismatch, though nearly 10 years have elapsed since the issue of the first Aadhaar. 
 
"Non-pairing of biometric data in the system with demographic information was not in consonance with the instructions issued by UIDAI and non-availability of personally identifiable information (PII) documents with the Authority, for those already collected from the residents, impacts the reliability of the Aadhaar database." (Read: Aadhaar Database Continues To Have Faulty Biometrics, Unpaired Documents: CAG)
 
Given that volumes of such accounts have been opened (under PMJDY) with the intention of financially including the excluded, such a scenario lacks the desired spirit of digital financial inclusion. But this is what has happened and it is now making lives harder for rural and economically backward account-holders. 
 
As reported by Moneylife, every time an Aadhaar number-holder wants to do an e-KYC or even yes or no authentication, she will have to pay the money. 
 
In a gazette notification issued on 6 March 2019, UIDAI says, "Aadhaar authentication services shall be charged at Rs20 (including taxes) for each e-KYC transaction and Rs0.50 (including taxes) for each yes/ no authentication transaction from requesting entities; and government entities and the department of posts shall be exempt from authentication transaction charges." (Read: Aadhaar: Start Paying Rs20 for Each e-KYC, 50 paisa for Yes/No Authentication Now!
 
In March 2021, Moneylife Foundation sent a memorandum (https://www.mlfoundation.in/memorandum/hardship-and-financial-death-inflicted-on-depositors-due-to-arbitrary-freezing-of-bank-accounts/130.html) to the governor, Reserve Bank of India (RBI), on the harassment caused to ordinary depositors by the draconian action of blocking access to their own money on the grounds that KYC documents were not updated. (Read: Moneylife Foundation Impact: RBI Implements the Main Recommendations of MLF Memorandum on KYC)
 
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Comments
josephfernandes959
8 hours ago
Since Urban poor are struggling with the E-Kyc, can only imagine the plight of rural poor.
The understaffed (merged) banks, specially in rural sector are pushed to the limit, doing the work beyond banking..
It's pitiful and unjust
care.kanara
3 weeks ago
Most inefficient Governor of our history!!
Do you think he will work on your memorandum?
raghavan vasudevan
3 weeks ago
RBI has to simplify KYC norms for people in rural areas and senior citizens as many senior citizens also face huge issues when dealing with Digital KYC. While Aadhar based authentication is quick and simple, the lack of infrastructure in certain pockets could hurt the poor badly. KYC for all customers once in 10 years can be waived based on the track record of the accounts as today Banks are geared to handle all types of Suspicious Transactions. As rightly pointed out doing KYC for millions of jan dhaan customers is going to be a huge problem and RBI/FM should come out with a solution for alternate KYC documents instead of insisting on digital KYC
r_ashok41
3 weeks ago
FM and Pm are making the life miserables with the ekyc and banks simply do not cooperate even for aged people
s5rwav
3 weeks ago
Mrs Nirmala Sitharaman the Finance Minister of Mr Narendra Modi Govt Seems Unperturbed at the Unbearable Miseries of the Helpless Lakhs of Poor Indians whose Bank Accounts are Frozen.
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