The 15 bps rate cut is in line with expectations, as there were hints that the organisation would look to recoup from low investment yields
The Employees’ Provident Fund Organisation (EPFO) has recommended a 15 basis points (bps) cut in interest rates for provident fund deposits to 8.5 percent for FY20. (100 bps=1 percentage point).
The Central Board of Trustees (CBT) — apex decision-making body of the organisation met on March 5 to decide on the quantum of cut. The 15 bps rate cut is in line with expectations, as there were hints that the organisation would look to recoup from low investment yields.
The new rate will come into effect once it is notified by the Finance Ministry.
The Finance Investment & Audit Committee (FIAC) takes into account the body’s earnings last fiscal before arriving at a final rate cut. The interest rate was 8.65 percent in FY19, and 8.55 percent in FY18.
EPFO has suffered from bad investments – Rs 4,500 crore worth – in Dewan Housing Finance (DHFL) and Infrastructure Leasing & Financial Services (IL&FS), which it is unlikely to recover any time soon due to the ongoing resolution processes for both.
Earnings from long term fixed deposits (FDs), bonds and government securities (G-Secs) also fell 50-80 bps over the past year and the retirement fund body may thus find it “difficult to keep rates unchanged this fiscal,” reports said.Overall, the body has invested Rs 18 lakh crore, of which 85 percent is in the debt market and 15 percent in equities through exchange-traded funds (ETFs). Till March 2019, its investment in equities stood at Rs 74,324 crore (recording 14.74 percent returns).