Indian Banks don’t want UID involvement #Aadhaar

15 Apr, 2013, 0417 hrs IST, Ahona Ghosh & M Rajshekhar, ET Bureau

MUMBAI/NEW DELHI: The government’s plan to make the Aadhaar number the centrepiece of the cash-transfer system is now facing opposition from a new quarter: banks. Several banks, led by State Bank of India, have expressed reservation against jettisoning their current systems in favour of the platform created by the Unique Identification Authority of India (UIDAI), which issues the Aadhaar number and wants to make it the basis to authenticate an individual’s identity before every transaction in bank accounts into which welfare benefits are deposited.
These new lines of conflict are throwing posers to, and could even delay, what is being seen as UPA’s gambit for the next general elections, due in 2014: universalise cash transfers.

The banks’ reservation to the UIDAI authentication platform, built along with the National Payments Corporation of India (NPCI), a payment gateway, centres around two points.

One, banks want the UIDAI to bear all liabilities related to ‘false identification’ — an individual’s complaint that someone else withdrew money from her bank account. “Till this issue is sorted out, we cannot use this system,” says LP Rai, deputy general manager, rural business (IT-P&SC), SBI.

Two, UIDAI wants banks to retool their respective systems in line with its own, which is ‘inter-operable’ — accountholders can transact on a handheld machine of any bank, as with ATMs now. While some banks, including SBI, accept a common system is the way to go in the long run, they are questioning the need to make this shift today, particularly in the absence of safeguards that protect their interests. “You will hardly find inter-operability in villages,” says K Unnikrishnan, deputy chief executive of Indian Banks’ Association (IBA), the lead grouping of banks.

The current impasse revolves around contingent liability in case of a false identification. “Suppose we go ahead with a transaction because Aadhaar has told us that the person is the accountholder, but the accountholder later tells us it was not him. Who holds the liability in such a case?” asks a senior banker in SBI’s financial inclusion team, not wanting to be named. “Since UIDAI wants to do the authentication, it should also take on the liability.”

A senior manager in UIDAI’s financial inclusion team, speaking on the condition of anonymity, says the rules don’t authorise UIDAI to do so. “We cannot set aside money for such liabilities,” he says. According to Unnikrishnan, a request made by banks to rework their agreement to address this issue has been with the UIDAI for two months.

Banks, which will have to pay to use the UIDAI-NPCI platform, are also wary of dealing with a monopoly. “Who is to say they will not increase their charges? It’s an extra cost for me,” says a senior banker with a large PSU bank, not wanting to be named.

For now, banks are standing by their individual systems, which don’t talk to each other. So, SBI has fingerprinted its accountholders and does its own pre-transaction verification. Other banks have done the same. C Rajendran, executive director, Bank of Maharashtra, says the SBI model is the “only viable solution” for authentication till the issue of contingent liability is sorted out.

AP Hota, chief executive officer of NPCI, says there’s a massive duplication in work and costs if each bank does its own biometrics, maintains its own software and servers, and employs its own force of banking correspondents (BCs) for doorstep banking. “When UIDAI has collected data and we (NPCI) have created a common platform, why should banks duplicate the effort?” he asks.
The UIDAI official quoted earlier says a bank’s BCs can handle transactions of its own customers (termed ‘on us’ transactions), but doubts their ability to handle transactions of customers of other banks (termed ‘off us’ transactions). The latter involves an extra step: a customer’s biometrics are routed from the bank providing the infrastructure to the one with whom the customer has an account. “Banks will not be able to solve it,” says the UIDAI official.

According to Rai of SBI, ‘off us’ transactions are currently only 1-2%, though he accepts that banks will have to migrate to the UIDAINPCI platform to enable inter-operability. SBI has done a pilot that links its system to the UIDAI-NPCI platform, but has not operationalised it because of the contingent liability issue. There are multiple conversations and debates happening on the verification ecosystem. According to Rai, one proposal from the banking regulator is to let banks have their own systems and use the UIDAI-NPCI platform for a second check.

Unnikrishnan of IBA says a migration to the UIDAI-NPCI platform is inevitable. “It will happen, but there is a cost involved and it will take time,” he says. Banks will have to replace the smart cards issued by them and handheld machines in circulation with new ones that are also compliant with the Aadhaar platform.

To drive the adoption of the UIDAI-NPCI platform, UIDAI is offering a 65% subsidy to banks for every Aadhaar-enabled handheld machine they buy. UIDAI will pay Rs 15,000 for every machine, which costs Rs 23,000, but only after a bank does 2,000 transactions on the device. “This will ensure banks actually use the machines,” says the UIDAI official.

At this time, it is not clear how the issue of contingent liability will be resolved and the impasse broken. The UIDAI official says one line of thought is to press ahead without SBI. About 20 banks have signed up with UIDAI to use the Aadhaar platform. “They (the other banks) signed the agreement under pressure,” says the unidentified SBI official quoted earlier. “At a recent meeting, they raised more issues than us.” Eventually, adds the UIDAI official, they might escalate the issue to the finance minister for resolution.


India’s Cash Transfers for the Poor Face Early Hurdles #UID #Aadhaar

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200 px (Photo credit: Wikipedia)






DOHAKATU, India—Officials in this impoverished eastern Indian village have a message for local residents: the government wants to give you a bank account and plop money in it—now.


India is embarking on a dramatic shift in how it delivers welfare benefits to its hundreds of millions of poor citizens. The program, which officially begins in January and will be rolled out nationally by the end of next year, will transfer up to $58 billion in cash into the bank accounts of some 90 million households. Beneficiaries will withdraw the money using a high-tech system that verifies their identities using fingerprint scans.


Indians who now must get welfare payments at post offices—enduring waits of days or weeks and sometimes paying bribes to get entitlements—will get direct deposits in their personal bank accounts for everything from old-age pension to scholarships to salaries for public works projects.


Poor households will also get cash deposits to buy basic commodities like kerosene and cooking gas at market rates. That would replace subsidies that currently go to distributors, who are supposed to offer discounts—a system that critics say is plagued by waste and fraud.


The new payment approach doesn’t create any new entitlement programs for the poor. But the ruling Congress party has trumpeted it as a signature anti-poverty initiative, hoping it will prove a masterstroke ahead of national elections in 2014. Party leaders say direct deposits will ensure entitlements get to beneficiaries instead of being siphoned off by middlemen, and are touting the slogan “Your Money in Your Hands.”


Dohakatu is a village of subsistence potato and rice farmers in Jharkhand state. Its residents largely depend on government handouts to survive and it is among the handful of regions that participated in early trials of cash transfers and have a head-start in the rollout. People here are already getting direct cash deposits for a range of benefits.


“We are quite confident the cash transfer scheme will create magic in the next election,” said Shahzada Anwar, a Congress party official in Jharkhand who was in Dohakatu village recently to watch locals withdraw cash.


India’s huge amount of welfare spending is a major contributor to its shaky public finances. The nation’s budget deficit was 5.8% of gross domestic product in the year ended March 31. The government says the new cash deposit program can generate much-needed budget savings by eliminating corruption such as people using fake identification documents to get the same benefit twice.


To withdraw money under the program, beneficiaries must present a 12-digit unique identification number that every Indian is gradually being issued—220 million people have them so far. Then, they must scan their finger on a portable device known as a micro-ATM, which validates their identity in a national biometric database.


“No one can falsify their identity and get away with it,” Finance Minister P. Chidambaram told reporters recently. He said the efficiency gains are “incalculable.”


But at least in the early going, the cash transfer project will actually be a financial drag, with $1.2 billion in estimated net losses for the exchequer through March 2015, according to a recent study by the government-funded National Institute of Public Finance and Policy. The expected savings will come in the following six years and will total about $14.5 billion, or 15% of the budget deficit in the latest fiscal year, the report says.


Transferring cash for 29 government welfare programs will be a massive administrative undertaking. The first challenge is to open bank accounts quickly in places like Dohakatu: only 40% of India’s 1.2 billion people have bank accounts, and only 36,000 of India’s 600,000 villages even have a bank branch. There are plans to open 73,000 new “ultra small” bank branches of about 100 to 200 square feet apiece and hire one million banking employees in rural areas, according to minutes from a government committee overseeing cash transfers.


The micro-ATM machines depend on creaky wireless connectivity with speeds on par with the standard a decade ago in the U.S. Getting the system to work requires the intricate syncing of databases by managers of the national unique ID program, government agencies dispensing benefits, and banks. Banks have to be equipped to process a flood of new transactions in their networks. Cooking gas-related transactions alone could number 1.7 billion per year.


“The magnitude is just staggering,” said R.S. Sharma, director general of the Unique Identification Authority of India that runs the national “Aadhaar” identification program. “If you start transferring money into people’s accounts and don’t create a distribution network, then you are in for big trouble,” he said.


India took inspiration for its new approach from other big emerging economies, including Brazil, Mexico, Turkey and South Africa, which have started cash transfer programs to combat poverty and social inequality. India is targeting a far larger number of households than those countries. But its program is different because it isn’t linking benefits to specific social goals. Brazil’s program, for instance, gives 12 million low-income households about $30 a month on the condition that they show their children have an 85% school attendance rate and have received medical checkups and vaccinations.


About 2,000 people are participating in the Jharkhand cash transfer program now. In Dohakatu, part of Ramgarh District, locals were streaming into a ramshackle community center on a recent afternoon to withdraw cash. Among them was Riman Devi, a 51-year-old widow.


Her salary for digging wells and ponds as part of the government rural jobs program was deposited directly into her first-ever bank account that was created last month. Rather than go to a distant bank branch to access it, Ms. Devi approached an official and uncertainly handed over a card with her 12-digit ID number printed on it. He keyed the number into a micro-ATM. She scanned her finger to check her balance, and then again to withdraw her week’s salary: 400 rupees, or $7. Everything checked out. The official reached into his pocket, pulled out a wad of bills and paid her. (He, in turn, gets reimbursed by the government.)


Ms. Devi said the new system beats the old approach of getting government payments from the local post office, which often wasn’t open or would run out of money. “Sometimes it took two to three days to get the money. It was very difficult. It’s faster here,” she said. She spent some of the cash that afternoon on edible oil, spices and vegetables at a local bazaar.


The new way of paying has hardly solved Ms. Devi’s problems. Her only income comes from occasionally selling homemade bamboo baskets for 50 cents apiece. She doesn’t qualify for a widow’s pension because the government doesn’t classify her as below the poverty line. A local official says that is a mistake that will be corrected when the central government does a new poverty survey. Ms. Devi lives with her son in a mud-walled house with a bedroom that doubles as a rice-storage area. “Winter is coming and we don’t have warm clothes,” she said.


Sitting nearby in the village center was Vasudev Pahan, an 80-year-old whose family lives mainly on subsistence wheat and potato farming. Collecting his $7 monthly pension—which goes to low-income senior citizens—used to be an ordeal. He’d squeeze into a car with 14 people to go to a government office in a nearby town. Then he would wait in a line of as many as 400 people. Sometimes the office would run out of money or close before he could get his cash, so he’d have to return a few days in a row.


Now Mr. Pahan walks 20 minutes to the micro-ATM in the village center and withdraws cash in minutes from an account where the government has deposited his pension. “People who are getting it this way are happy,” he said.


A few local Congress party officials arrived at the Dohakatu center to take stock of the action and take credit for what they already proclaim as a signature achievement. Mr. Anwar, an affable, mustachioed man with a thick shag of black hair, shook hands with some villagers before plopping into a plastic chair. “This is the strongest weapon for us,” he said of the political benefits of the new program. “No one can give opposition to this.”


Leaders of the Bharatiya Janata Party, Congress’s main opposition in New Delhi, have criticized the Congress party for over-politicizing the initiative, but haven’t attacked the idea of the new direct payments.


Glitches in technology were on display in Tigra, a group of farming villages 12 miles west of Ranchi, Jharkhand’s capital. Some 39 people signed up to participate in the new program in October, but 30 of them weren’t able to take out cash from the mini-ATM despite trying several times. The main problem, authorities said, was that their new bank accounts at state-owned Bank of India weren’t “seeded” with unique ID information for beneficiaries—so it was impossible to verify people’s identities.


On a recent afternoon, Mahmood Alam, the local banking representative in Tigra who handles micro-ATM transactions—known as a “business correspondent”—believed the problem had been solved and was setting up to give out cash to a few dozen locals. He set up his micro-ATM machine not far from men and women threshing rice crop and goats wandering in the fields.


He tapped with his stylus to enter the details of Teju Gope, a 71-year-old pensioner who has a new account with Bank of India. “Place your finger for processing,” a message on the screen said. Mr. Gope swiped his finger. After a few seconds came a disappointing reply: “UID (unique ID) blocked/inactive/wrong.”


Mr. Alam shook his head. “It’s still not working,” he said. He said he’s optimistic about the new program but acknowledged the government’s rushed approach has resulted in some errors. “It looks to me like everything wasn’t totally ready,” he said.


A.K. Pathak, assistant general manager of Bank of India, said the Tigra payments snafu is an isolated incident that has been resolved. He said the Jharkhand trials overall have gone well.


The Jharkhand government is racing to expand the program. About 19 million of the state’s 32 million people still haven’t gone through the sign-up process to get biometric ID numbers. In Ramgarh district about 60% of the 950,000 residents don’t have unique IDs. The government is trying to prioritize people who will be getting cash transfers.


“This is a huge task for us—a technological leap forward is happening,” said Amitabh Kaushal, Ramgarh’s deputy commissioner, the top local bureaucrat.


Local officials say the use of biometric identification will weed out people who used aliases or fraudulent documents to get the same benefit twice. In one block of villages in Ramgarh, the government used to have 43,801 claimants in the rural job program as of the last official figure in 2006. But after a recent sign-up drive with biometrics, there were nearly 9,000 fewer people on the rolls. Mr. Kaushal said it isn’t clear yet whether that discrepancy is a result of fraud removal or the normal transition of some people off welfare.


New Delhi officials are counting on the biggest savings to come from countering fraud in the subsidy programs for commodities like kerosene and cooking gas. Critics say the current system is rife with corruption. Dealers siphon off goods and sell them on the black market. People fake their way into getting benefits they don’t deserve.


Food subsidies are the government’s biggest welfare expense, accounting for $13.3 billion in spending in the year ended March 31. But the government left food out of the cash transfer program, wary that it is too complex and too sensitive to do now. A survey of 1,200 households last year by the Indian Institute of Technology in Delhi found that two-thirds of respondents were strongly in favor of keeping the status quo of picking up food grains at government ration shops rather than going to stores to pay market rates.


The biggest limitation of the cash transfer project, critics say, is that it won’t solve the most fundamental problems in India’s targeting of welfare subsidies. Biometric screening ensures that people trying to get benefits are who they say they are—and eliminates duplicate subsidies. But if a person is being excluded from benefits now because they aren’t classified as below the poverty line, or is wrongly classified as eligible for benefits, nothing in the cash transfer program will detect that or change it.


Meanwhile, there are limits to the program’s ability to stamp out corruption. There is no reason a micro-ATM operator can’t ask for a kickback when giving people their money, just as a postal worker might, the critics say. “If you’re getting arm-twisted today, you’ll get arm-twisted tomorrow,” said Reetika Khera, a development specialist at the Indian Institute of Technology in Delhi.


From a political standpoint, putting cash into the bank accounts of the poor would seem like “manna from heaven” for the Congress-led government, says Ravi Srivastava, a development economist who has studied cash transfers. But he said it would be “incredible folly” for the government to underestimate the challenges of executing the project, especially in such a quick time frame.


“This whole thing has raised expectations to an unrealistic level, both within government and within the Congress party,” he said.


—Rajesh Roy and Krishna Pokharel contributed to this article.
Write to Amol Sharma at


A version of this article appeared December 27, 2012, on page A9 in the U.S. edition of The Wall Street Journal, with the headline: Tapping Benefits GetsEasier for India’s Poor.




Of Aadhaar/UID , cash transfers and red tape


For a system geared to control and command, cash transfers pose an implementation challenge


Sandipan Deb ,

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200 px (Photo credit: Wikipedia)



First Published: Thu, Nov 29 2012. 02 19 PM IST


Respected prime minister ji, I am manager of bank in V___ (name censored under official secrecy, sedition, information technology and 11 other Acts; six loiterers outside bank branch given breathalyzer tests, two security guards at bank suspended for “poking” each other on Facebook), class VI town in Uttar Pradesh and I am hearing about this direct cash transfer business for few years now. I am also attended two-day training programme for bank officers on this in December 2011 at L___ (censored under ibid, nota bene, etc.,). Now I am hearing this is happening, and in my district. Sir, I am feeling very confused.


Then my one more neighbour is coming. He is saying, Arre, murkh, you look at the 29 schemes that will start on 1 January. They are all cash schemes anyway: scholarships and pensions. So how is anything changing? People will only now come to your bank with Aadhaar cards. And if they don’t have Aadhaar cards, you don’t pay.
I am reading in the papers and also watching on TV that this is a “game changer” and I am having to convince my foolish neighbour that cash transfer changing game has nothing to do with cricket match-fixing (He is very angry about defeat to British team in Mumbai). It has to do with election, but he is saying all same. I am telling him that now I will have to open hundreds of new savings accounts, and I am having only three clerks and Mrs Singh, who is sister-in-law of MLA and only comes to bank twice a day to light agarbatti in front of poster of Mr Aamir Khan she has put up. My security guards have been suspended by competent authority under Public Decency Act. How I will serve so many customers?
But the money for pensions and scholarships are not coming to my bank in time, I am saying. They are months late sometimes. In a few cases, they are two years late. How will having Aadhaar change that? Also, how will Aadhaar know who is poor and who is not poor? Poor and rich, I am thinking, don’t have different fingerprints. Not to worry, my neighbour is telling me. Aadhaar will know everything about you, where you go, what you buy, all your hanky-panky. Mrs Singh will put all in computer. She can have screensaver of Mr Aamir Khan also. Her computer will be linked to many other computers and no hanky-panky will be allowed. More than 21 crore people are having Aadhaar and they will come and take cash. What do you care if they are poor or not? They have Aadhaar.
What about people who are not having Aadhaar? I am asking. Then they will bring enrolment forms for Aadhaar, my neighbour is saying. If they don’t have that also, they will bring sarpanch and hold dharnas outside your bank, that is all. Anyway, the roads are so bad, they will take two days to reach your bank, Aadhaar or no Aadhaar. During monsoon, three months, no one will come.
But I am knowing so many people who have Aadhaar cards but who are not those people at all, I am saying. So my neighbour is asking me if I have targets. Yes, I tell him, and I am meeting disbursal targets every year by giving money to MLA and his cousins. Aadhaar people also have targets, my neighbour is saying. They have to give so many cards every month. So some fictitious fellows and non-Indians may have come in. But you do not worry. You open account. And they will withdraw money from ATM.
ATM? What ATM? I am saying. There will be many ATMs, my neighbour is explaining, that will go in cars from village to village and people will take out cash from them. But where will cash in the ATMs come from? I am asking. What do you care? He is telling me. Private sector is there. Will that be real cash? I am asking. Mostly, he is saying. You are not hearing of white-label ATMs? Now you don’t have to be bank to set up ATM.
Also panchayats and cooperative societies will be giving the cash, so you need not worry about only three clerks and no security guard. You will only be sending report on computer. But all panchayats and cooperative societies are run by my MLA and his cousins, I am telling, so there will be hanky-panky! But my neighbour is saying, no. No hanky-panky possible when technology is there. People can want to be badmaash, but telephone and computer will not allow. Only big people will be able to continue to do badmaashi now. You are kis khet ki mooli?
All this time, my friend who is guide for poverty tourism is listening and downloading ring tunes. He is now saying, but cash transfer is already happening in many states. With own eyes I saw. In Bihar and Orissa, they are giving money for cycles and school uniforms. In other states also. Lots of bearded firangs in SUVs are coming and taking video. So what is new?
No game change, my foolish neighbour is then saying. The British will win in Kolkata also.
So, sir, I am scratching my head only about this. Also, sir, can I meet my disbursal targets if MLA and cousins don’t have Aadhaar cards? I am not wanting any untoward incidents, sir. I am small man.

Sandipan Deb is a senior journalist and editor who is interested in puzzles of all forms.




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