Reserve Bank of India looks to sort out e-KYC matter for non-bank lenders

Kolkata: The Reserve Bank of India and the government are working closely on how to allow the digital customer authentication facility to non-bank entities to help them to reach out and cater to a wider section of population, two people familiar with the matter said.

This assumes significance amid the spread of coronavirus when physical proximity is best avoidable.

At present, only banks are allowed to do customer identification online through OTP (one-time password) based Aadhaar card authentication. The government has been hesitant to give non-banks entities the access to the Unique Identification Authority of India’s (UIDAI) database following the complaints of misuse of it.

Non-bank lenders and microfinance companies which are not allowed to do so, are lobbying for similar facilities.

Earlier in the month, microfinance association Sa-Dhan has urged the government to invoke Section 11A of Prevention of Money Laundering Act that permits non-banks to perform authentication under the Aadhaar Act.

RBI‘s response on the issue has been positive. It is understood that they are already in touch with the government on this matter,” Sa-Dhan executive director P Satish told ET.

Allowing the non-banks access to the database through a third-party such as the National Payments Corporation of India (NPCI) could be one of ways to prevent money laundering and misuse of it, one of persons cited above said.

In today’s fintech world, anything which propagates less paper, faster downloads, lesser human intervention, faster distribution, assumes significance, said HP Singh, chairman of Satin Creditcare Network, a Delhi-based microfinance company.

Sa-Dhan in its earlier communication to RBI, the finance ministry and UIDAI had said that the absence of e-KYC raised the costs for clients and usage of fake Aadhaar cards. “As NBFC-MFIs and MFIs were disallowed from using e-KYC, the microfinance sector and its clients have been facing a lot of issues… e-KYC is very critical for the microfinance sector in dealing with KYC based frauds which could adversely affect clients and MFIs.”

A Supreme Court ruling had barred the use of Aadhaar database by NBFCs for the customer authentication purpose.

In January, RBI however allowed the use of video based KYC facility for customer on-boarding by lenders across the board, but Sa-Dhan said that it would be difficult for MFIs to invest further in new technology and adopting it in scale amid the pandemic.


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