As per the landmark judgement of The Supreme Court of India, the world’s largest biometric system, Adhaar, cannot be mandated by the lending companies to be used as the KYC document. Before we get into further assessment of what it means to you as a borrower let us first assess the KYC regulation to have a better understanding on this important factor.
KYC, know your customer, is a mandatory requirement laid down by the Reserve Bank of India. The guidelines have directive on both new and existing customers that the banks and other financial institutions need to comply with. Any time a new facility is extended to an individual, the financial institution is required to collect any one of the approved KYC documents. This includes the identity proof and address proof. Say, one is applying for a personal loan as a new facility, he would be required to furnish these KYC documents. On the existing customers, the banks are required to revalidate the address after a certain period of relationship. So if you are having a savings account with the bank, you may be asked to furnish fresh set of KYC documents post a certain number of years.
Now the banks and other financial institutions are also required to check the validity and authenticity of the documents submitted with them. This is definitely a cumbersome process which needs to be carried out manually if the hard copies of the documents have been submitted. Then with these manual checking, there is a definite exposure to fraud or an error that can impact the repayment of loans.
With Adhaar coming into practice, the lenders migrated to e-verification of this bio-metric document that captures both identity and the address. The use of Ahdaar to comply on the KYC requirement got mandated by the banks. This helped the institutions to reduce their operational cost substantially on one hand and on the other also facilitated speedier underwriting process and decision of the loan application.
However, the same is now not mandated and you can decide to go with the other documents as well. As an address proof, you can provide copy of Passport, Driving License, Utility Bill other than the Adhaar itself. As far the identity proof is concerned, you may extend Passport, PAN card (which otherwise in mandatory to be provided even if is not being used at the identity proof), Driving license or Adhaar card.
The Supreme Court while delivering the 1400 page long order against the mandatory linking of the bank accounts with the Adhaar stayed it to be unconstitutional. So while the banks will be able to access the CIBIL report online, they would not be able to have access to the Adhaar for KYC verification until the borrower permits them.
The decision to extend Adhaar Card for verification now lies in the borrowers’ hands. But providing it for verification purpose may help in faster processing and disbursal of funds. This will help in faster access and utilization of the loan proceeds for the required need.
Another factor that the Adhaar based online validation was being used was for e-sign as against the physical signatures. This process sped up the whole process of evaluation and disbursal since the borrower had the flexibility of time and executing it from anywhere.
But in case you are the one who fear that the online usage and linking of every transaction online with Adhaar may expose you to certain perils (the argument again is not unjustified), you can use the traditional route and provide the banks and financial institutions with the documents of your choice.
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