SBI blames norms for low returns from PF

IDBI, UTI seek EPFO investment pie.

India's largest bank, State Bank of India, which is set to lose its monopoly over the Employees' Provident Fund Organisation (EPFO) investments, has attributed the low returns from its PF corpus to government-mandated "stifling" guidelines.

Reacting to reports that some EPFO members dubbed SBI's fund management as `shoddy', with poor returns of 7.39 per cent being delivered in FY 2007, SBI officials said the entire EPFO funds were invested in government-approved instruments as per guidelines of the finance ministry.

"We have followed the exact investment guidelines of the ministry... we have not deviated from them," a SBI official said seeking anonymity.

"The interest rates have started moving up only in the last quarter of FY 2007 and hence it is quite obvious that the returns for the entire financial year 2007 would be low," he said.

"Most of the other PFs of Canara Bank and Union Bank have generated similar 7.5 per cent returns. Hopefully, you can expect better returns for the next financial year as rates are now going up," he said.

In its meeting yesterday, the EPFO's finance wing sought to know why the SBI failed to give increased returns and invested over 62 per cent of the corpus in the bonds of public sector units from the mandated 30 per cent. It also sought an independent investigation into SBI's fund management practices.

Sharad Patil, a member of central board of trustees of EPFO, said as the risk-taking appetite of SBI is zero and there is no accountability, the returns are low.

"A lot of innovation is possible within the government framework to increase the returns on the provident fund investments... but no one at the SBI wants to take the initiative. It's time to introduce competition for the EPFO's investment business so that returns can improve," said he.

In order to instill competition, the EPFO has already invited other players to make presentations on how they can handle the EPFO's treasury operations better. IDBI Capital, UTI and ICICI have made detailed presentations to win a slice of EPFO's Rs 150,000 crore corpus and are now awaiting the formal process to be initiated by EPFO for selecting the fund manager.

"In the present rising interest rate scenario, the faster the government makes up its mind to manage the EPFO business, the better," S Muhnot, managing director and CEO of IDBI Capital said. "We are already managing the pension business of Coal India, which is doing quite well," he added.

Of its massive Rs 150,000 crore corpus, it is mandatory for the EPFO to invest 70 per cent in government guaranteed special deposit schemes. The rest of the funds can be invested in corporate bonds and other debt instruments.

"By investing the PF money in corporate bonds, where the returns are higher than government bonds, we can offer at least 0.40 to 0.70 per cent higher returns," Muhnot added. "Better fund management is the need of the hour."