UIDAI Issues Aadhaar-based Authentication Framework for Cooperative Banks

Key Development

The Unique Identification Authority of India (UIDAI) has launched a new Aadhaar-based authentication framework for Cooperative Banks. This framework is aimed at enhancing last-mile banking access and advancing financial inclusion across India.

• Scope of Coverage:
  1.  Institutions covered: 34 State Cooperative Banks (SCBs) and 352 District Central Cooperative Banks (DCCBs).
  2.    Stakeholders consulted: Ministry of Cooperation, NABARD, NPCI, and cooperative banks. 
• Key Features of the Framework
  1. Shift in Registration Structure:
     • Earlier Framework: Both SCBs and DCCBs could register directly with UIDAI as Authentication User Agencies (AUA) and eKYC User Agencies (KUA), requiring each entity to establish and maintain its own IT systems.
     • New Framework: Only SCBs will now be registered with UIDAI as AUA and KUA. DCCBs will leverage the Aadhaar authentication applications and IT infrastructure of their respective SCBs.
  2. Simplified Onboarding and Cost Efficiency: Eliminates the need for DCCBs to set up or maintain separate IT infrastructure and brings down operational and compliance costs, while ensuring smoother service rollout.
  3. Enhanced Customer Services: Biometric eKYC and face authentication for faster and more secure account opening and facilitation of direct benefit transfers (subsidies/welfare schemes) into cooperative bank accounts using Aadhaar.
  4.  Expansion of Digital Payments
     • Cooperative banks, under the new framework, will be empowered to provide Aadhaar-based interoperable banking services, including cash withdrawal, balance enquiry, fund transfers, and remittances through AePS. Additionally, with access to the Aadhaar Payment Bridge, these banks can act as effective channels for routing government subsidies, pensions, and welfare disbursements directly into Aadhaar-linked bank accounts. This integration strengthens the cooperative banking network’s role in delivering Aadhaar-enabled financial services at scale.
     • By adopting Aadhaar-linked payment platforms, cooperative banks will significantly enhance financial access in underserved regions. Customers, particularly those without easy access to traditional bank branches, will be able to conduct secure and real-time digital transactions at local cooperative banks. This initiative reduces dependency on cash, promotes digital literacy, and fosters trust in formal banking systems, thereby advancing the Government's financial inclusion and digital India objectives. 
• Regulatory and Policy Significance
  • The framework directly supports national priorities by enabling greater penetration of Aadhaar-enabled banking services. It reinforces the Government’s commitment to extending formal financial services to the unbanked and underbanked population, particularly in rural and semi-urban geographies.
  • By centralising UIDAI authorisation exclusively at the State Cooperative Bank (SCB) level, the framework eliminates the earlier duplication of efforts by District Central Cooperative Banks (DCCBs). This ensures more efficient regulatory oversight, reduces the administrative burden on smaller cooperative entities, and achieves consistency in compliance with UIDAI standards.
  • The model provides a harmonised mechanism for Aadhaar usage by enabling DCCBs to operate under the technological and compliance umbrella of their respective SCBs. This fosters a standardised approach to Aadhaar-based services, ensuring reliability, interoperability, and consistent user experience across the cooperative banking ecosystem.
• Implications for Stakeholders
  • Cooperative Banks: State Cooperative Banks (SCBs) will bear the primary responsibility for compliance, registration with UIDAI, and maintenance of IT infrastructure. District Central Cooperative Banks (DCCBs), in turn, will benefit from this centralised arrangement by accessing Aadhaar authentication services without the need to build or maintain their own systems. This reduces cost and technical barriers for DCCBs, enabling them to focus on customer service delivery while still adhering to UIDAI standards through their parent SCBs.
  • Customers: Customers, particularly in rural and semi-urban regions, will experience faster and more secure onboarding through biometric eKYC and face authentication. They will also benefit from improved accessibility to banking products, digital payment solutions, and seamless credit of subsidies, pensions, and welfare transfers directly into their cooperative bank accounts, thereby reducing delays and leakages in government benefit disbursal.
  • Regulators/Policy Makers: The framework strengthens supervisory control by concentrating UIDAI authorisation at the SCB level, making regulatory oversight more streamlined and effective. It reduces duplication of efforts across hundreds of smaller cooperative banks, ensures uniform compliance with Aadhaar-related requirements, and promotes wider adoption of Aadhaar-enabled services across the cooperative banking sector, supporting the Government’s broader digital inclusion and financial empowerment objectives.

Author: Vishwas Chitwar, Senior Associate.