NEW DELHI: In what could hobble the government’s plans to give Aadhar a key role in banking and a central pin of the direct cash transfer scheme, several state-run banks have refused to bear any liability for transactions done with customers that were authenticated through the unique identity (UID) mechanism.

Banks and the Reserve Bank of India (RBI) had been convinced by the finance ministry to use Aadhar to fulfill the know-your-customer (KYC) norms – authentication of identity and address while opening bank accounts. This had been necessitated by the need to not only give Aadhar a fillip, but also to ensure enrollment of millions of poor into the banking system before the cash transfer scheme is fully rolled out.

KYC is a term that is used in the banking business for customer identification process. It involves making reasonable efforts to determine true identity and beneficial ownership of accounts, source of funds and the nature of customer’s business. Notified by the Reserve Bank of India, the objective of the KYC norms is to prevent banks being used, intentionally or unintentionally for money laundering.

The other documents permitted by the RBI for authentication under the guidelines are official documents — like driving licence and passport — that have been verified by government officials.

But the banks have expressed concern that the details in Aadhar are verified by third party non-government operators and agencies to whom the UID Authority has outsourced work. They have told the government that they would not wish to be held liable for any fraudulent transactions that may occur against accounts created using Aadhar.

“When it comes to a cheque, the signature has been verified by my executives. So, I can take responsibility for it. But how can I do the same for the thumb impression that has not been captured by me?” asked a public sector bank chief.

With the UPA wishing to roll out its cash transfer scheme, including cash transfer of massive food and kerosene subsidies as well as the wage payments under the rural employment guarantee Act, the banks have expressed their unwillingness to suffer any liability for incorrect documents that they are incapable of cross checking.

The reluctance of the banking sector to trust Aadhar is expected to further delay the scheme that UPA hopes to be its big- ticket poll sop for 2014 election.