India: Banks to continue using Aadhaar

November 28, 2018
Hon’ble Supreme Court SC determines

The advancements in the technological arena have elaborated our work domain removing the physical barriers and operating upon the virtual media. The advent of digitalization has touched almost all spheres of human lives making it more independent and self-reliant. Wide range of services available on the electronic mode such as commercial activities, banking, record keeping, communication, information source, etc. have elevated the standard of living at the click of a button, overcoming the hurdles of the physical transactions. This has led to increase in the number of online payments being carried on with the assistance of e-signals.

Verifying the users of the e-space

The increased proliferation of internet easing the availability of major facilities online has also led to the verification relying on the electronic media. Issued under the provisions of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (hereinafter referred to as “Aadhaar Act”) and Aadhaar (Authentication) Regulations, 2016 (hereinafter referred to as “Regulations”) and monitored by the Unique Identification Authority of India (hereinafter referred to as “UIDAI”), Aadhaar is a 12 – digit unique identification number based on the biometric and demographic data of the individuals. It is the social security number issued by the Government of India comprising of information such as a photograph, ten fingerprints and two iris scans, which are stored in a centralised database.

Verdict of the Supreme Court

Aimed at restricting the usage Aadhaar based biometric authorization by private sector businesses and institutions, the Apex Court of the country vide its judgement dated September 26, 2018, ordered for scrapping of the provisions of Section 57 of the Act, which allowed private entities which used Aadhaar for verification purpose.[1] This approach of the Supreme Court focusses on reducing the risk of identity theft and other forms of forgeries and preventing the intrusion of the privacy of the people of the country.

Impact on the industry

Aadhaar verification has been one of most reliable and simpler sources of identity verification. The new judgement tends to increase difficulties for the private financial institutions and telecom companies increasing their costs and time for registration of new subscribers as they exit the Aadhaar platform for verification of their customers.

Banks permitted to use Aadhaar…

UIDAI has clarified the applicability of the guidelines laid by the aforementioned judgement, in order to remove the ambiguity in the said regard, stating that banks to continue with the Aadhaar-enabled Payment System.[2]

The above referred judgement held the continuation of Aadhaar linking in respect of direct benefit transfers under Section 7 of the Aadhaar Act.

The Aadhaar-enabled Payment Systems has advantageous in terms of ensuring the transfer of Government benefits and subsidy monies to the beneficiaries. The Government is devising out strategies to use this media to generate loans as a part of the financial outreaching. Reiterating the principles laid down in the judgement stated above, UIDAI has informed that the banks are not prohibited from using Aadhaar services for their customer verification. However, private financial institutions and mobile companies face the said restriction.

[1] Justice K.S. Puttaswamy (Retd.) and Another Vs. Union of India and Others [SC Writ Petition (Civil) No. 494 of 2012]


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