This article is more than 2 years old.

August 29, 2017 This article is more than 2 years old.

It was meant to be a one-stop solution to the identity conundrum of over a billion Indians. Aadhaar, the massive 12-digit biometric authentication platform, was expected to make the routine transactions, which citizens enter into with the government and private entities, more transparent.

However, this unique identity number may only have rendered the system more opaque.

The banking sector is a case in point.

Due to a confounding mix of lack of communication, multiple authorities, and parallel sets of instructions, millions of Indians now face the risk of their banking transactions being disapproved and accounts being frozen, even as lenders refuse new customers—all over Aadhaar.

The confusion

At the heart of the problem is the dichotomy between what the government and the sector regulator, the Reserve Bank of India (RBI), say about the documents required to transact.

A June 01, 2017, notification from India’s finance ministry says that the prevention of money-laundering rules, 2005, have been modified to make it mandatory to link bank accounts to customers’ Aadhaar numbers by Dec. 31.

The ministry’s communication also says that one can use either Aadhaar or one’s permanent account number (PAN) to open new accounts. “In case the client…does not submit the Aadhaar number or the PAN at the time of commencement of an account-based relationship…the client shall submit the same within a period of six months from the date of the commencement of the account-based relationship,” it further states.

However, reports contradict this, suggesting that it’s now compulsory to submit Aadhaar numbers to even open new accounts.

Meanwhile, the RBI’s know your customer (KYC) guidelines, the primary document required to open a bank account, state that Aadhaar is only one among several options that can be used to open new accounts. The other legitimate documents are passport, driving licence, voter’s ID, PAN card, the central government’s job guarantee card, etc.

“The RBI has not yet communicated to the banks that Aadhaar is mandatory for all activities and they are the final word as far as banking regulations are concerned. So I think there is a lot of confusion because the interpretation from the government notification has been different,” said the executive director of a private bank.

An email sent to the RBI over the issue remained unanswered.

In the absence of a clear directive from the central bank, some bank executives believe they cannot ignore the finance ministry’s guidelines. “Since it’s a gazetted notification, the belief is that the regulator’s approval isn’t required,” said the executive director of another mid-sized-private-sector bank, requesting anonymity.

Customers suffer

Quartz India writer Itika Sharma Punit was unable to open a joint account with her five-month-old child in Bengaluru as she doesn’t have an Aadhaar number yet. “Bank officials at ICICI Bank and Kotak Mahindra Bank said Aadhaar was mandatory,” said Punit.

But ICICI Bank denied this. “One can submit any of the eligible identity and address proof documents to open an account,” the bank said in an email.

Another Quartz India writer, Sushma UN, faced trouble over Aadhaar at an Indian Bank branch in Chennai which wouldn’t allow her to close a joint account she has with her brother. Again, a bank official clearly denied that this was their policy.

Possibly, branch personnel are unaware of the rules, leaving customers in the lurch.

Some, like Kotak Mahindra Bank, have indeed made Aadhaar mandatory officially—not waiting for the Dec. 31 deadline. This, they say, is to ensure full compliance well before time.

“To avoid any inconvenience to customers post Dec. 31, in case the account is not linked with Aadhaar (such accounts will become inoperative), we insist that a customer provide his/her Aadhaar number at the point of opening an account,” Rohit Rao, a Kotak Mahindra Bank spokesperson, said in an email to Quartz.

Other lenders such as the State Bank of India, HDFC Bank, and Axis Bank did not respond to Quartz’s emails in this regard.

Meanwhile, concerns have been raised regarding the very need to make Aadhaar mandatory for banking. The Aadhaar Act, 2016, states that it can be made compulsory only in certain cases involving government funds, such as the receipt of a subsidy, benefit, or service.

With the Indian supreme court on Aug. 24 declaring the right to privacy a fundamental one, the government’s rush to make Aadhaar mandatory for a clutch of services is likely to be questioned more vigorously.

Banking customers (and banks) are desperate for answers.