Sucheta Dalal :Public Provident Funds and HUFs
Sucheta Dalal

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Public Provident Funds and HUFs  

October 20, 2010

This is an issue that is several years old, but we revisit it because too many people are still unaware of how the government functions with regard to schemes that use banks and post offices as collection points. Here is what is happening to a lot of people. A reader, RJ, wrote to us: “I have a Public Provident Fund (PPF) account with State Bank of India (SBI) in the names of two HUFs (Hindu Undivided Family) of which I am the karta. The account has been operative for over 25 years and was renewed in April 2007 for a five-year period. Since then, the Bank accepted the maximum investible amount of Rs70,000 every year until March 2010 and also credited interest on the amount for three years until March 2010. Now, the branch manager says that I cannot get interest as per a government notification issued in May 2005. Why then did the Bank renew my account in 2007 and accept my deposits every year? How do I get justice?”

While this story may sound outrageous, the Reserve Bank of India (RBI) tells us that getting justice may not be so easy. It is, indeed, a fact that HUFs cannot open a PPF or even a post-office account since May 2005; but people continue to be taken for a ride and the accounts continue to be opened out of ignorance. Does that make the bank liable? According to sources in RBI, it does not. The bank only acts as a collection agent for what is essentially a government scheme and earns a tiny commission for the service rendered. It is the job of the customer to know the rules and regulations. Incidentally, the bank does not get to use the funds or the float on it, so it is not possible to hold it accountable or ask it to pay interest. Bankers also say that after a spate of complaints, the government issued advertisements informing HUFs about the changed rules.

However, the bottom line is that when it comes to government schemes, the banker is only a facilitator and investors need to know the rules. A bit of sage advice from a banker to the thousands of angry customers who have threatened to take SBI to court is: First safeguard your principal by withdrawing the money, even if it is after deduction of interest. Only then, launch a battle. If a lawsuit is filed, it is clear that the Supreme Court will, ultimately, decide whether collecting banks or post offices are supposed to know the rules and are liable to pay interest. Until then, the best course is for such depositors to come together for a legal fight —
Sucheta Dalal

-- Sucheta Dalal