Government securities to rollover SDS frowned at

The Union ministry of labour is learnt to be concerned about the proposed 10-year marketable government securities because these will be offering lower interest rates than what the Employees Provident Fund Organisation (EPFO) has to pay its subscribers. Currently, yield on the 10-year benchmark government security is ruling at 5.70 per cent.

The government had proposed to issue marketable gilts of 10-year tenure to roll over 10 per cent of outstanding balances under its special deposit scheme (SDS).

According to sources close to the development, discussions have been held to this effect whereby labour ministry representatives on behalf of the EPFO have put forward their concerns. As per their views, accepting these bonds will lead to further widening of the gap between their receipts and payouts.

While EPFO pays 9.5 per cent on its accruals, it gets 8 per cent from its investments in SDS. On the other hand, in a falling interest rate regime, SDS remains one of the high interest instrument to deploy funds.

Being market-related, these securities will earn return of around 5.8-6 per cent which is in no way a compensation for their payout. Moreover, the receipts will further defer the accruals for another 10 years, said sources.

SDS was launched by the Central government on July 1, 1975, with the objective of providing better returns to non-government provident funds, superannuation and gratuity funds, surplus funds of the Life Insurance Corporation (LIC) and Employees' State Insurance Corporation. According to sources in public sector banks, the 10 per cent outstanding balances will be mainly under six major SDS accounts amounting to a total of around Rs 7,000-7,500 crore.

At present the government is busy consolidating the figures due for redemption. It has asked all the agency banks for this scheme to furnish fresh data as there has been a difference of around Rs 6,000-7,000 crore between the figures available with banks and the government of India.

The data are being collated by merging the two schemes of 1975 and 1981 for working out the amount to be paid back to depositors. The 1975 scheme was meant for funds and trusts, while the government floated the 1981 scheme for Life Insurance corporation, General Insurance corporation and Unit Trust of India.

The data compilation has become imminent as the scheme is coming up for redemption in 2004.