RBI clarification on Donations to Trusts and Institutions where Directors, their relatives hold position or are interested


 

Reserve bank of India, vide Notification No:RBI/2013-14/205 UBD.BPD.(PCB).Cir. No. 7/09.72.000//2013-14 dt.August 30, 2013, has banned Urban Co-operative Banks from

  • from giving donations to Trusts and Institutions,
  • where directors, and/or their relatives hold position or are interested,
  • even within the permissible ceiling of 1% of the published profits of the bank for the previous year.

Such an extreme step was necessary as it was brought to RBI notice that, some of the UCBs have made contributions which are in the nature of donations to the Trusts for charitable or benevolent objective or for any exhibition in which the directors or relatives are interested.

The previous reference circular is Circular No:  UBD (PCB)/BPD/Cir.43/09.72.00/2004-05 dated April 11, 2005, in terms of which Urban Co-operative Banks (UCBs). As per this circular, UCBs  were advised that the normal donations to be made during a year should be restricted to a ceiling of 1% of the published profits of the bank for the previous year and such normal donations, together with those that may be made to National Funds and other funds recognized /sponsored by the Central /State Government, during a year, should not exceed 2% of the published profits of the bank for the previous year.

The terms ‘relative’ and “interest, as used above, have been defined as below.

Annex

Definition of terms “relative” and “interest”

1. “relative”

The ‘relative’ of a director of the bank shall mean any relative of a director of the bank as indicated hereunder:

A person shall be deemed to be relative of another, if and only if, :-

a) they are members of a Hindu Undivided Family; or

b) they are husband and wife; or

c) the one is related to the other in the manner indicated below :

 

List of relatives

 

1. Father

2. Mother (including step-mother)

3. Son (including step-son)

4. Son’s wife

5. Daughter (including step-daughter)

6. Daughter’s husband.

7. Brother (including step-brother)

8. Brother’s wife

9. Sister (including step-sister)

10. Sister’s husband

 

2. “interest”

Trust in which directors /relatives of directors hold positions as Trustees, or are beneficiaries or involved in any capacity in the working of the trust, which is likely to influence the independence of the director(s).

 

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