Banks told to return mutt money

The Reserve Bank of India has directed ICICI Bank and HDFC Bank to return funds invested in the 8 per cent taxable government bonds on behalf of the Kanchi Kamakoti Mutt.

According to market sources, the two banks, which act as agents for government businesses, invested the mutt's money in government bonds.

However, the central bank, in the course of its investigations, found out that the mutt did not qualify as a charitable organisation under the eligibility criteria for investors laid down by it. The RBI found fault in these banks' management of government business, sources said.

The money was subsequently returned to the mutt after a year without interest. The instrument, offering an 8 per cent coupon, matures in six years.

An ICICI Bank spokesperson said: "ICICI Bank has not invested the sum on behalf of the mutt. The mutt itself had invested its funds in the bonds, with ICICI Bank acting as the agent. Based on a clarification issued by the RBI, we have reversed the transaction and the funds have been returned to the mutt."

An HDFC Bank executive said the customer (the mutt) had submitted to the bank a ministry of finance notification under Clause 23(C) of Section 10 of the Income-Tax Act, which establishes its eligibility as a charitable institution (for investing in this instrument).

"The RBI, however, held that the institution concerned was required to obtain a notification certificate from the income tax department under certain other sections of the Income-Tax

Act for being eligible for investing in RBI bonds as a charitable institution. After the RBI notified this to the bank, necessary corrective action was taken," he said.

The executive also pointed out that, as required by the RBI, steps to avoid such deviations in future had also been put in place. However, both the banks denied any knowledge of the regulator passing strictures on their management of government business.

Pollachi Mahadevan, manager of the Kanchi Peetham, said he was aware of the development and pointed out that the banks should have returned the money citing non-eligibility (of the mutt for investing in the bonds) some time after the money was invested, instead of waiting for one year.

"We could have invested the money somewhere else and earned an interest," he said.

As an agent, ICICI bank invested around Rs 1.6 crore (Rs 16 million) in these bonds and HDFC Bank put in around Rs 95 lakh (Rs 9.5 million).

A charitable institution has to register itself under Section 25 of the Companies Act, 1956. Alternately, it can obtain a certificate from the income-tax department for this purpose under section 80 G of the IT Act, to qualify as an eligible charitable institution.