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The Employees Provident Fund Organisation's trustees, on Friday, relaxed the norms for parking funds in bank deposits. And, referred the issue of investing a portion of its funds into the equity market and housing sector to a committee.
The trustees also approved a proposal to allow all nationalised banks to handle its PF collections. At present, SBI is the only commercial bank so entitled.
Meanwhile, the Union finance ministry has approved the trustees' decision to give a 8.75 per cent return to the 50 million subscribers of the retirement fund body for 2014-15.
The Central Board of Trustees (CBT), highest decision making body of EPFO, also decided to ease the norms on bad debts, to deposit its funds in term deposits of the public sector lenders. This would ensure entities such as State Bank of India (SBI) remain eligible for this. It would make 20 banks eligible for taking fixed deposits (FDs) from EPFO, against eight at present.
"We have proposed forming an expert committee to look into the overall investment prospects of EPFO funds. We want to properly examine improving the return on investment, by investing in various avenues such as housing,” said Union labour minister Bandaru Dattatreya, who chaired the meet.
The members said the retirement body wanted to “carefully balance return and risk” before taking a decision. “There are a lot of investment instruments available but we need to calibrate between return and risk, as this is the subscribers’ money. Hence, these committees will look into the totality of investment climate,” said Union labour secretary Gauri Kumar, also the CBT vice-chairman.
The four-member panel on this will have two employers’ representatives and two employees’ representatives, sources said.
EPFO wants to enable subscribers to own house and is looking into various models adopted abroad, such as in Singapore, said Kumar. For this, it has formed a separate committee to look at how the present norms for withdrawing EPF funds for this purpose can be relaxed. This new panel will have investment experts such as retired bankers or high-level officials working in banks, a top official said.
The Prime Minister’s Office (PMO) had proposed the body consider deploying 15 per cent of its total funds towards loans for low-cost housing. This is expected to generate a credit flow of Rs 70,000 crore to the segment, to build 350,000 additional homes.
This was discussed in the executive committee (EC) meeting of the EPFO on Thursday, before taking it up in the CBT meeting. “We were unanimous in recommending that EPF should not get into the business of construction. Rather, a mechanism should be formulated to facilitate members getting their houses built,” a source told Business Standard.
At present, an employee who is an EPFO subscriber for five years is eligible to withdraw some portion of the EPF money for housing finances but there are stringent conditions.
As for the move to help public sector banks such as SBI, the CBT approved parking of its deposits in banks with non-performing assets (NPAs) below three per cent of the total.
Earlier, it could invest in term deposits of banks only when their NPAs were below two per cent but many banks were becoming ineligible because of the rising level of bad loans.
EPFO deposits around Rs 50,000 crore in term deposits of banks every year. These offer one of the highest returns on its present investments.
According to the agenda item, the Union finance ministry had mooted a further relaxation, by allowing banks with up to four per cent NPAs in this regard.
The miistry of finance has also ratified the decision taken by the previous CBT, in August this year, to keep interest rates at 8.75 per cent for subscribers.
The trustees have also allowed nationalised banks to handle its PF collections. At present, SBI is the only commercial bank so entitled. The move will allow EPFO to open accounts with other nationalised banks in addition to SBI, to facilitate collection of EPF contributions from employers. It would, however, require an amendment by the government in the Employees Provident Funds Scheme, 1952.
In another move, the CBT approved reducing the maximum settlement time for claims and payments to EPFO beneficiaries to 20 days from the existing 30 days under the Employees PF, Employees Pension and Employees’ Deposit Linked Insurance schemes.
Further, the trustees adopted EPFO’s draft annual report for 2013-14 and approved the budget estimates for 2015-16, Dattatreya said.
