Aadhaar Seeding Mandatory For Bank Accounts Under KYC, Says RBI. Five Things To Know

The Reserve Bank of India (RBI) has made linking of national biometric ID Aadhaar to bank accounts mandatory as part of its updated 'Know Your Customer (KYC)' guidelines. This, however, will be subject to the final decision of the Supreme Court on making of Aadhaar mandatory, RBI said in a circular late last night. Till now, an Officially Valid Document (OVD) for address proof together with Permanent Account Number (PAN) issued by the Income Tax department and a recent passport size photograph were the key KYC documents.

But in the amended Customer Due Diligence (CDD) procedure, RBI said, "The Aadhaar number, the PAN or Form No. 60" need to be obtained from an individual who is eligible for applying for the biometric ID. The RBI has done away with sections relating to the use of other OVD by banks for address and identity proof.

Aadhaar Key To RBI's KYC norms. Five Things To Know

1. In a circular, the RBI said the latest rule (of making aadhaar key to the KYC norms) has been revised since the government has amended laws on prevention of money laundering (PMLA) through a gazette notification in June 2017. However, it is not clear when will the new guidelines come into force. (Also Read: RBI Clarifies There Is No Cash Shortage, Sufficient Money In Currency Chests)

2. In March, the Supreme Court struck down a March 31 deadline for linking of Aadhaar to a host of services such as bank accounts, SIM cards and PAN (Permanent account number) card. In wake of that court verdict, the latest diktat holds a lot of significance, however, the RBI order is subject to the apex court's decision.

3. The RBI (Reserve Bank of India) circular states that for the purpose of doing customer due diligence, all RBI-regulated entities (banks and financial institutions) must obtain "from an individual who is eligible for enrolment of Aadhaar", the Aadhaar number, PAN or Form No. 60 as defined in income tax rules. Since every citizen is eligible for Aadhaar, the rule will apply to all Indians.

4. The Aadhaar requirement though is relaxed for residents of Jammu & Kashmir, Assam and Meghalaya. It is still not clear how banks are expected to deal with customer due diligence considering that the new circular amends several of the earlier directions dated February 25, 2016. For instance, the new norms do not include an earlier section allowing a copy of the marriage certificate issued by the state government or a gazette notification, indicating change in name together with a certified copy of the 'officially valid document' in the existing name of the person as proof of address and identity. (Also Read: Linking Aadhaar With Pension Should Not Be Mandatory, Says Supreme Court. 5 Points)

5. This means that Aadhaar would be the only proof of identity for KYC purpose. It also does away with the flexibility of a declaration from a relative certifying that the account holder is living with a person as proof of address. Until now, customers who are identified as 'low risk' by banks were allowed to be given six months to complete the due diligence process. This has been discontinued, and also the relaxation which allows existing customers to open additional accounts without repeating the KYC process.