The Central Board of Trustees (CBT) of the EPFO had in February recommended a hike interest rate to 8.65 percent for its six crore active subscribers
The Employees' Provident Fund Organisation (EPFO) exposure to risky entities like the Infrastructure Leasing & Finance Services (IL&FS) has prompted the Finance Ministry to question whether the fund has enough surplus to pay the 8.65 percent interest rate for 2018-19, The Financial Express reported.
In a letter to the Labour and Employment Ministry, the Finance Ministry asked why the surplus after payment of the EPF interest rate for previous years can be seen only in the fund's 'estimates' and not clearly in the 'actuals'. It has also asked for details about EPFO's exposure to murky entities.
Moneycontrol couldn’t independently verify the report.
In EPFO accounts for 2016-17, there exist information about 'income over expenditure' on a cumulative basis, but it does not provide clear details. "In case of a default, the liability to pay to EPFO subscribers would be with the government. That's why due diligence of the EPFO's accounts is being undertaken," the article quoted an official as saying.
However, an EPFO official told the newspaper that the fund's calculations are correct and the ministries should not be worried as nothing has happened so far. "We have been undertaking this exercise for the last 20 years or more. It's not a new methodology that we are following," the official said.
The EPFO's investment in IL&FS was pegged around Rs 574 crore by Standing Committee on Labour in its report. Firms, which manage the EPF of their employees on their own, had an even higher exposure to IL&FS than the retirement fund body. The committee had warned the government that this could put workers at a disadvantage.
The Central Board of Trustees (CBT) of the EPFO had in February recommended a hike interest rate to 8.65 percent for its six crore active subscribers from 8.55 percent in FY18. At that interest rate, the surplus left after payout for EPFO stands at Rs 151.67 crore. "These discussions are part of the process to see if the 8.65 percent interest will be feasible," an official said.The CBT recommends an interest rate for the financial year, which the Finance Ministry has to ratify, and then it gets credited to the EPFO subscribers' accounts. If this is approved, the 8.65 percent rate would give an interest higher than most savings instruments.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.