EPFO to give interest on inoperative accounts

The Employees’ Provident Fund Organisation (EPFO) on Tuesday allowed interest payments on inoperative accounts from April, reversing a decision by the previous government.

Inoperative accounts are those that have been inactive for three years.

The finance ministry also approved EPFO’s proposal to increase investment cap on government securities (G-secs) and lower it for private commercial papers. Many members expressed reservation on up to five per cent investment in exchange-traded funds (ETFs), which have yielded negative returns. Labour Minister Bandaru Dattatreya assured of a review.

TAKING INTO ACCOUNT
  • Total accounts with EPFO: 150 million
  • No. of active accounts with EPFO: 40 million
  • Inoperative accounts with no accretion for at least three years: 90 million
  • Rest (inoperative due to other reasons): 20 million  
Source: Labour ministry

The decision on interest payment, taken by the central board of trustees (CBT), will benefit 90 million accounts. These accounts have Rs 32,000 crore as on date. This means the organisation would give a total interest payment of Rs 2,816 crore on these accounts for 2016-17, assuming the rate remains 8.8 per cent.  The finance ministry is yet to give a formal approval to EPFO’s proposal for 8.8 per cent rate for the current financial year.

Labour Secretary Shankar Aggarwal said, “Earlier we were earning interest on these accounts but not paying interest. Now, we will pay interest on these funds.”

Aggarwal said a decision on paying interest between 2011 and March 2016 has not yet been taken.

The finance ministry also accepted an earlier proposal by EPFO to increase investment cap on G-secs to 65 from 50 per cent.

As a result, the ceiling on investment would come down in private commercial papers to 30 from 45 per cent. As much as five per cent is invested in ETFs.

The sovereign debt sales included a planned increase to Rs 3.5 lakh crore through sale of state development loans (SDLs) by regional governments, from Rs 2.9 lakh crore this financial year.

In addition, states and their utilities were set to sell Rs 1 lakh crore in bonds tied to Ujwal Discom Assurance Yojana, a plan under which regional governments would assume as much as Rs 4.3 lakh crore of debt owed by their power utilities.

All-India Trade Union Congress secretary D L Sachdev said, “The labour minister said the finance, audit and investment committee of EPFO will review the investments in the ETFs.”

An EPFO analysis has revealed that the body earned a negative return of 9.54 per cent on its Rs 5,920-crore investment in ETFs since August 2015. Market value of investments of Rs 5,920 crore in ETFs this financial year was Rs 5,355 crore as on February 29, the analysis revealed.

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