Mumbai: The Indian Banks’ Association (IBA) has questioned the jurisdiction of the Unique Identification Authority of India (UIDAI) in issuing directions to banks under the Aadhaar Act, according to two people aware of the matter.

IBA has written to the ministry of electronics and information technology, the Reserve Bank of India (RBI) and the finance ministry’s department of financial services (DFS), arguing that only the central bank is empowered to issue directives to banks under the Banking Regulation Act, the two people said on condition of anonymity.

On 14 July, UIDAI first asked banks to open Aadhaar enrolment and updating facilities in at least one-tenth of their branches by the end of August. Later, it extended the deadline by a month and said it will impose a Rs20,000 fine per uncovered branch after 30 September, the Press Trust of India reported on 5 September, citing UIDAI chief executive Ajay Bhushan Pandey.

Now, in another directive on 7 October, UIDAI has made it mandatory for banks to act as both the Aadhaar registrar and enrolment agency. Banks will no longer be able to engage with private agencies for Aadhaar enrolment of their customers, it said.

“Banks shall complete the task of setting up Aadhaar enrolment and update center in 15,200 bank branches by 31 October. The centres shall be operated by banks directly inside bank branches without involvement of any private Aadhaar enrolment agencies," said the circular, a copy of which has been reviewed by Mint.

The latest revision mandating that Aadhaar enrolment be done by banks directly comes after they had started the process of on-boarding private agencies for the opening and updating of Aadhaar accounts.

“State Bank of India (SBI) had already appointed 400 agencies for Aadhaar enrolment. The bank will now have to rework the strategy and allot its existing staff to do the process.," said Neeraj Vyas, deputy managing director at India’s largest lender. “We are looking to set up 3,000 centres across rural and semi-urban areas."

Spokespersons for UIDAI and IBA declined to comment. Emails sent to RBI and the department of financial services went unanswered.

The IBA letter also flagged issues involved in banks creating an Aadhaar database and using it for know-your-customer (KYC) purposes, according to one of the two people cited earlier.

“Aadhar enrolment is not the primary role of banks. We are awaiting clarity from both RBI and government whether we should take directives from an external authority to do Aadhaar enrolment as part of banking activity," said this person.

UIDAI is authorized to ask banks to act as an enrolment agency after the government amended the Aadhar regulations, a government official said on condition of anonymity. The amendment gave UIDAI powers to ask any central or state agency or bank that provides a service requiring an individual to show an Aadhar number to also “ensure enrolment of such individual who is yet to be enrolled (for Aadhaar) or update their Aadhaar details, by setting up enrolment centres at their premises".

Some experts challenge this view. According to S.D. Kelkar, former legal head of SBI, the amendment is framed under Section 54 (n) of the Aadhaar Act. This particular section deals with the general rule-making powers of UIDAI, which included laying down terms and conditions for the appointment of registrars, enrolling agencies and other service providers. It, however, doesn’t empower the authority to make it mandatory for banks to enrol Aadhaar customers, Kelkar explained .

The amendment “looks ultra vires (beyond one’s legal power or authority) and can be challenged on grounds that such a regulation cannot be framed by UIDAI", said Kelkar.

On 14 October, a fresh petition was filed in Supreme Court challenging the government’s decision to link bank accounts and mobile phones to the 12-digit unique identity number issued by UIDAI.

In June, the government had amended the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, requiring Aadhaar to be linked to every bank account by 31 December, failing which the accounts will become inoperative.

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