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Setu-ing the Standard: NPCI’s New Path to Aadhaar e-KYC

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Archisman Bhattacharjee | finserv@vinodkothari.com

Introduction

The National Payments Corporation of India (NPCI), vide its notification NPCI/2024-25/e-KYC/003 dated 10 March 2025, formally introduced the e-KYC Setu facility. As outlined on NPCI’s official platform, e-KYC Setu enables Aadhaar-based e-KYC authentication under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (Aadhaar Act), without disclosing the individual’s Aadhaar number to the requesting (verification-seeking) entity.

Designed as a one-stop onboarding solution for regulated financial-sector entities, e-KYC Setu leverages Aadhaar-based e-KYC services while ensuring compliance with privacy safeguards under the Aadhaar Act. A key feature and a significant compliance advantage is that regulated entities using e-KYC Setu are not required to obtain a separate notification under Section 11A of the Prevention of Money-laundering Act, 2002 (PMLA). This allows financial sector regulator entities to conduct Aadhaar-based authentication without directly collecting Aadhaar numbers or integrating with UIDAI as a licensed AUA/KUA, thereby reducing both operational complexity and regulatory burden.

In this article, we examine the regulatory implications for RBI-regulated entities, the legal permissibility for non-AUA/KUA entities to conduct authentication through e-KYC Setu, process how e-KYC setu operatives and the operational and business benefits of adopting this framework.

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Simplifying the KYC process and business identifier

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Anita Baid, Vice President | finserv@vinodkothari.com

Backdrop

The regulations for conducting customer identification and due diligence by financial sector entities have been laid down by RBI and SEBI, in accordance with the provisions of Prevention of Money Laundering Act and Rules. Under the current regime, the KYC process extends from physical KYC to digital and video-based KYC as well. The physical process of collecting KYC documents and verifying the same involves a lot of paperwork. On the other hand, the Digital KYC Process is a facility that allows lenders to undertake the KYC of custom​​ers via an authenticated application, specifically developed for this purpose, hence making it a paperless process. The Digital KYC process, however, also requires physical interaction. Video-based KYC is both paperless and without any physical intervention.

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