Banks can use Aadhaar for KYC with customer's consent: RBI

RBI has updated the Master Direction on KYC to include the Aadhaar, if voluntarily produced by an individual for the purpose of identification

Banks can use Aadhaar for KYC with customer's consent: RBI

Last year, the Supreme Court proscribed the use of Aadhaar for KYC (Know Your Customer) on account of security concerns and misuse of customer data. However, it entrusted RBI to offer appropriate directions to banks and financial institutions to meet the KYC norms.

On May 29, 2019, RBI updated the Master Direction on KYC to include the Aadhaar, if voluntarily produced by an individual for the purpose of identification.

What does this mean?

As per the Master Direction, RBI prescribes a list of rules and documents that need to be followed by bank and other Regulated Entities (RE) for the opening of bank account, onboarding customers and providing various other services. 

In February, the Union Cabinet had approved promulgation of an ordinance to permit voluntary use of Aadhaar as a proof of identity for various uses such as opening a bank account or availing of mobile connection.

In January, the Lok Sabha had necessitated the Ordinance as a Bill, pending in the Rajya Sabha since the approaching dissolution for the current Lok Sabha, as the country went to elections.

The Ordinance now allows banks to conduct online or offline Aadhaar verification for KYC with customers consent. It also created new options in the Aadhaar Act, giving minors the option to exit from the biometric ID programme on turning 18 years of age.

What are the directives?

There is a distinction between banking customers who avail of Direct Benefit Transfer (DBT) and other subsidies and those customers who have opted out of the benefits. 

Customers who are desirous of availing of DBT will have to compulsorily offer their Aadhaar for e-KYC verification. Banks may also engage third parties to conduct offline KYC when required. The Master Direction now specifies that bank accounts opened through an OTP verification using the 12 digit Aadhaar number will require a physical verification to be completed within a years’ time.

Customers who have opted out of DBT need not divulge their Aadhaar details and in case the same has been shared, banks are not permitted to store the customer details. Any Aadhaar records that the bank has had to be blacked out or redacted as per sub-rule 16 of Rule 9 of the amended PML Rules. RE’s can request for any other Officially Valid Document (OVD) for verifying the customers proof of identity, address along with a recent photograph.


The Finance Ministry has laid out rules for non-banking entities such as mobile wallets too. However, these are yet to be incorporated by RBI in its directives. See what are the new Aadhaar features- virtual ID and limited KYC and how do they work?

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