EPFO defers interest rate decision

The Central Board of Trustees of the Employees Provident Fund Organisation today deferred a decision on fixing the interest rate for 2005-06 till December 7.

During the marathon six-hour meeting "" with 34 items on the agenda, including interest rates "" the labour ministry officials almost clinched the issue of fixing the interest rate at 8 per cent.

After discussing the interest rate for over four hours, Labour minister K Chandrasekhar Rao, however, suggested that a decision be deferred in the wake of repeated demands from the trade unions for a higher interest rate, sources present at the meeting told Business Standard.

After the meeting Rao told reporters that a decision had been deferred as some finer points about the accounts were not available. Besides, a committee was looking at the finance ministry's decision to permit EPFO to invest 5 per cent of the funds under management in equities and mutual funds.

"We are examining all aspects. There are certain things which are not clear. We will be in a better position to judge the income (for the year) after closer examination of the accounts," the minister said.

The CBT also deferred a decision on the Employees Pension Scheme which has a deficit of over Rs 20,00 crore.

The unions' demand for 9.5 per cent interest rate for the year will mean that the EPFO will be left with an unfunded liability of Rs 1,176.37 crore.

According to the EPFO's Finance and Investment Committee's estimates, the interest liability at 9.5 per cent would be Rs 7,699.52 crore against an expected income of Rs 6,523.15 crore during the year. Of the net interest, income is estimated at Rs 2,500 crore, while Rs 4,167.69 crore is expected to flow out of the Special Deposit Scheme (SDS).

Of the Rs 79,764.48 crore invested by the EPFO at the end of the last financial year, nearly a third, amounting to Rs 52,096 crore, is invested in the SDS, while another 14 per cent or Rs 11,175 crore is invested in instruments issued by public sector banks and financial institutions. The EPFO has invested another 11.52 per cent or Rs 9,189 crore in Central government securities.