Electoral bonds: What the latest controversy is all about

In April, a news portal reported that these bonds have “a secret alphanumeric code” which was visible under UV light.

An RTI revealed that the FinMin, though reluctant to assign serial numbers initially, relented after SBI raised concerns about internal control and reconciliation.

The ministry also knew that serial number could reveal donor's identity.

Somesh Jha reports.

Illustration: Dominic Xavier/Rediff.com

The finance ministry was initially reluctant to put up serial numbers on electoral bonds, saying they had the potential to reveal the identity of the donors, but agreed later on, after concerns were raised by State Bank of India (SBI).

After being entrusted with the task of issuing electoral bonds, SBI had raised certain concerns with the finance ministry, according to official documents accessed through the Right to Information (RTI) Act by activists Commodore Lokesh Batra (retired) and Anjali Bhardwaj.

This was after the Union government issued the framework for electoral bonds, a financial instrument for making anonymous donations to political parties, on January 2, 2018.

In a letter dated January 19, 2018, SBI said that though the bonds will not carry the name of the buyer they “will necessarily need a serial number” as it will leave no audit trail for internal control and reconciliation and identifying the genuineness of the electoral bonds will become difficult at the branch level.

To this, the finance ministry drafted a clarification saying “putting a serial number would establish a link between the donor and the political party.

"This could discourage them to use such bonds.

"Hence, SBI may think of other security features, including holograms, to establish the genuineness of electoral bonds.”

It further added that in case this was not possible, a QR code or a “number with invisible ink” could be thought of.

However, the finance ministry agreed to dilute its stance after the SBI held a meeting with state-owned Security Printing & Minting Corporation of India (SPMCIL), which has been authorised to print the electoral bonds, on February 6.

Reversing its position, the finance ministry said in a response to SBI on February 9, 2018 that the “issues raised by SBI are valid and a bond not having any unique serial number will create a lot of operational difficulties for the bank and will also bring a lot of risks on the bank.”

It allowed the bank to put the serial number “to avoid these complications”, advising it to keep information “highly confidential.”

The first issue of the electoral bonds took place in March 2018.

In April, news portal The Quint reported that these bonds have “a secret alphanumeric code” which was visible under UV light.

This was, according to an agreement between SBI and SPMCIL in its February meeting following which the finance ministry had changed its stance on the serial number.

After media reports on a secret unique number on electoral bonds, a finance ministry official prepared an unsigned handwritten note - part of the official records - in April 2018, which said “we had not prescribed detail features.

"We had refused for any unique number. SBI had asked for it.”

Interestingly, in 2017, when the government was in talks with the Reserve Bank of India (RBI) to give the regulator the mandate to issue electoral bonds, the latter had also proposed a unique identifier for these bonds.

RBI Governor Urjit Patel had written to then Finance Minister Arun Jaitley on September 14, 2017 conveying various objections it had on the proposed electoral bond scheme.

He said in the letter that the RBI can take forward electoral bonds on certain conditions, including a unique identifier and “an additional security feature based ID.”

The RBI wanted to be the only authority to issue electoral bonds, through electronic means (Demat), and had raised objections to an enabling provision proposed by the government to authorise other banks to issue such bonds.

However, after heated exchanges between the RBI and the finance ministry on the issue from August to September 2017, the RBI’s committee of the central board observed in a meeting on October 11, 2017 “that if the government decides to issue electoral bonds in scrip form through SBI, the Bank (RBI) should let it be.”

The finance ministry had objected to issuing electoral bonds in demat form, as per the RBI proposal, as it felt that the “information of donor” with the regulator may raise apprehensions and make the scheme a “non-starter.”

The ministry, then decided to hand over the task of issuing electoral bonds to SBI after a meeting was held with its chairman Rajnish Kumar on 26 October in which he observed that “even if the electoral bond is issued as a paper bearer bond without the name of the payee, SBI would know who the donor was and would be able to link him with the payee election party when bond comes for encashment.”

“Hence, SBI will need to be insulated by suitable legal provisions if it is not expected to share the information with entities such as tax authorities, enforcement directorate, police in case of criminal matter, etc,” as per the record of discussions.

Even as the finance ministry declined a request from the RBI to go for demat version of the electoral bonds, in its meeting with the SBI chairman in October, finance ministry joint secretary (budget) Prashant Goyal noted how the bank was willing to go for digital applications.

“With some advance note, SBI could plan a demat version of the electoral bonds,” the records showed.