President Cyril Ramaphosa has authorised the Special Investigating Unit (SIU) to investigate a controversial tender that development agency Ithala awarded to Tech Mahindra for the supply, implementation and maintenance of an integrated banking solution.
In a proclamation published on Friday, the president asked the SIU to investigate “serious maladministration” in connection to the affairs of the embattled Ithala, which is on the verge of being liquidated by the Prudential Authority (PA).
The investigation will look into allegations of unlawful appropriation or expenditure of public money and explore possibilities including the recovery of any losses suffered by Ithala.
The investigation centres on the Tech Mahindra project — which the PA has investigated and uncovered mismanagement by Ithala in not taking action to recover the lost funds other than reporting a criminal case with the police.
The PA’s patience with Ithala finally ran out in January when the regulator sought the company’s liquidation to protect more than 250,000 depositors.
The Reserve Bank, which houses the regulator, said it was seeking the liquidation of Ithala, effectively ending its ambition of being a fully fledged bank.
Ithala maintains it is solvent.
Ithala, based in KwaZulu-Natal, has its origins in the establishment of the Bantu Investment Corporation in 1959 to cater for the black community in that province. It now funds small, medium and micro enterprises, co-operatives and infrastructure projects.
The company has been in and out of court with the PA in recent years as the regulator sought to have the entity regularise its affairs.
Though not a bank, Ithala takes deposits due to an exemption granted by the PA. Ithala has until recently been operating with a banking licence exemption, which is renewable every 12-24 months.
The most recent exemption lapsed in December 2023 after Ithala failed to meet conditions laid out by the PA.
The regulator raised concerns about Ithala’s high cost structure relative to its nature, size, complexity and risk profile.
The Treasury, meanwhile has reassured Ithala’s customers about their deposits, telling retail depositors that their money is protected by a government guarantee, subject to the conclusion of the necessary technical work. That work includes providing a government guarantee to one or more banking institutions to ensure the accounts of depositors can be migrated timeously and funds can be made available.
The Financial Sector Conduct Authority suspended Ithala’s licence in August after it failed to meet financial soundness requirements.
Ithala has been scrambling to secure a sponsorship agreement with a bank authorised to clear and settle payments in the national payment system, after its long-term banker, Absa, informed it of its intention to terminate their nearly 20-year agreement.
According to the SA’s banking laws, non-clearing financial services firms, such as Ithala, participate in the national payment system indirectly through sponsorship agreements with other clearing banks. Without a sponsor, it is practically impossible for such firms to do business and transact in SA.
Finance minister Enoch Godongwana has previously urged Ithala to lower its ambitions and consider partnering with an established lender or to apply for a less strenuous mutual bank licence while it regularises its affairs to qualify to become a commercial bank.
According to a presentation by Ithala to parliament last year, home loans accounted for almost a third of its book. It had deposits of R2.9bn at the end of November 2023, 37.1% of which were fixed deposits.
Ithala’s presentation showed it had 27,475 stokvels (informal savings groups) and 328,704 customers holding 398,522 accounts.
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