The Central Board of Trustees of the Employees’ Provident Fund Organisation (EPFO) on Friday decided to appoint an independent custodian to bank its securities worth Rs 4 lakh crore.
At present, State Bank of India (SBI) is the overall custodian of these securities, while HDFC Bank is the custodian of the securities under four fund managers. It was also decided that the independent custodian should not have links with the fund managers or deal in investments. The estimated cost of hiring an independent custodian has been calculated as Rs 1 crore per year. EPFO was so far not been paying any fees.
EPFO would set the process rolling in consultation with the finance ministry and soon bids would be invited for the selection of the custodian, Central Board of Trustees (CBT) member D L Sachdeva said after a meeting of the board on Friday. He said an independent custodian might benefit the subscribers as it might contribute to financial discipline in managing the investments.
“Till the appointment of fund managers, State Bank of India would continue to manage the EPFO corpus,” Labour Minister Mallikarjun Kharge, who also heads CBT, said after the board’s meeting on Friday.
The board also decided to extend the deadline for appointment of its four fund managers. EPFO had to appoint multiple asset management companies (AMCs) by June 30, so that the newly appointed managers could take over its fund by July 1 for a three-year period, as desired by CBT.
EPFO has already missed a deadline of March 31, the day on which the term of four fund managers, including ICICI Pru, HSBC AMC, Reliance Capital and SBI expired. It had planned to appoint new fund managers for next three financial years, beginning April 1, (2011).
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Since EPFO could not appoint new AMCs well in time, CBT, at its meeting on March 30, had decided that SBI would manage its entire corpus for a three-month period ending June 30 as an interim arrangement.
During April and May, SBI earned 9.64 and 9.23 per cent respectively yield of investments made by it on the behalf of EPFO against the benchmark 8.81 and 9.04 per cent.
CBT also adopted a report suggesting amendments in the EPFO Act to prevent bifurcation of wages by employers to deprive workers of their legitimate provident fund benefits. According to amendments, employers would not be able to pay basic pay less than the minimum wages prevailing in their respective states.
The amendment was proposed in a report by a committee of employers and workers’ organisations set up by CBT to look into anomalies in provident fund payments.
The main purpose of these changes is to ensure that employers stop bifurcation of wages in order to avoid payment of the legitimate amount of their contribution to the provident fund of the workers.
Employers are supposed to pay 12 per cent of the basic pay towards the provident fund deposits of the employees. However, it is seen that many employers bifurcate this basic pay and show it as conveyance or under some other heads with a small amount kept as basic pay, said Sachdeva.
CBT on Friday adopted the report of this committee. The proposals will now go to the labour ministry for consultations. After this, it would go to the Cabinet and then to Parliament for amendment to the EPF and Miscellaneous Provisions Act, said Sachdeva.
Kharge said after the meeting that provident fund subscribers would be able to see the status of their funds online soon.