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ET Bureau | May 7, 2012,

NEW DELHI: The national project to give unique identity numbers to all Indians, and enable welfare payments electronically, is now facing a snub from the very part of the government that funds it, and has been its most staunch supporter so far: The finance ministry.

Two moves initiated by the banking division in the finance ministry over the past three months appear to duplicate and bypass the work being done by the Unique Identification Authority of India (UIDAI) in enabling payments using itsAadhaar number and biometrics.

First, the department of financial services (DFS) has initiated its own pilot project for biometric authentication in Mewat district of Haryana. Secondly, it has advocated a model for electronic delivery of payments through banking correspondents that is identical to what the UIDAI is currently testing, but it has allowed banks to build and manage their own architecture rather than ride on UIDAI’s.

If banks take this route, and India‘s largest bank SBI is open to this idea, this could lead to a massive duplication of biometrics and authentication systems, and drastically reduce Aadhaar’s role in cash transfers. According to the UIDAI website, it had spent 1,067 crore on both enrolment and authentication systems till February 2012.

DFS secretary DK Mittal, the man behind both moves, declined to go into specifics, but said, “From time to time, we make suggestions to banks. It is up to them to accept.” But a senior UIDAI official, speaking on the condition of anonymity, told ET: “This is a pure anti-Aadhaar play.”

Previously, the home ministry had expressed reservations over UIDAI’s way of doing enrolments, and wanted its own National Population Register (NPR) to handle this function in its entirety; the prime minister intervened to work out a settlement whereby both the UIDAI and the NPR did enrolments.

Then, two other ministries – rural development, and food and civil supplies – said they would bypass Aadhaar to build their own authentication system. Both argued the UIDAI’s system of online, real-time, biometric authentication was unfeasible because of poor mobile Internet connectivity in rural areas.

But, the UIDAI official said, the system the DFS pilot is testing, and that banks and banking-correspondent (BC) companies will soon reshape, is identical to what UIDAI recently finished testing in eight pilots and will soon scale up through larger pilots in 50 districts. It is, he added, online, real-time (a person’s fingerprints are authenticated instantly) and it enables inter-operability (a person can transact through any BC, as in the case of ATMs).

One of the entities working on the Mewat pilot is the National Payments Corporation of India (NPCI), which creates routing systems for payments. When asked why the NPCI, which has been working on the UIDAI payment system too, is testing a rival payment system sans Aadhaar, its chief operating officer M Balakrishnan said he could not talk about the pilots till they are “successfully completed” and that “we are testing a range of payment options and this is one of them”.

Several players in the banking system are unsure about the UIDAI system at this point of time. This includes KC Chakrabarty, RBI deputy governor in-charge of financial inclusion, who feels banks should do authentication because Aadhaar is not ready. “Aadhaar was to give ID to people without cards, but it is giving to those who don’t need one,” he said. “Even if it signs up 500 million people in the next five to six years, and they are all people like you and me, it will not serve any purpose.”

The Mewat pilot gains additional importance in the context of the request for proposals (RFPs) public sector banks are starting to issue to meet the new rules for BC companies. The DFS has, said Mittal, “suggested” PSU banks that India be split into 20 clusters, largely along state lines. Each cluster will have a lead bank, which will appoint one BC for that cluster. The model so far allowed multiple BCs.

SBI issued the first of these RFPs for Maharashtra on April 10. A senior manager in the State Bank of India, speaking on the condition of anonymity, said that RFPs for the other 19 clusters are likely to be issued by May 10. The SBI RFP specifically said the technology solution can be based on an authentication system “other than the UIDAI”.

The head of rural banking in a large public sector bank, who declined to be named, said Aadhaar’s systems are a work-in-progress. “In some time, they might take over. But right now, they are not ready,” he said. Even banks will have to start from scratch, but this official feels they will be able to reach everyone in villages with a population of above 2,000 in two years.

The SBI manager adds that Aadhaar authentication does not currently have a legal framework. “We are waiting for a communique saying that it is ok for us to accept what Aadhaar says. Till then, it will not be accepted,” he said.

“This is just a bogey,” said the UIDAI official quoted earlier.

“This is just a bogey,” says the UIDAI official quoted earlier. “We have a unique transaction code and a non-repudiable, encrypted, digitally-signed packet saying this authorisation happened. It is a far more robust system than what the banks have at present. If banks are comfortable accepting Aadhaar for opening accounts, what is the problem with letting someone take out Rs 100 using Aadhaar?