EPFO may suspend investment in private sector bonds, say sources

The Employees’ Provident Fund Organisation (EPFO) is wary of its investments in private sector bonds and may cho­ose to not invest in such instruments for the time being, sources said. 

The move is aimed at preventing losses in such debt-related instruments as many private companies have seen a string of defaults and credit downgrades, the source said. 

The decision was taken at the meeting of the EPFO’s finance audit and investment committee held last month, a top EPFO official said, requesting anonymity. 

An FIAC member of the EPFO said its concurrent auditor had submitted a list of companies defaulting or witnessing a credit downgrade in the meeting held in April. 

The move to curb EPFO’s investments in private sector bonds will, however, require an approval from the central board of trustees, headed by the labour and employment minister, and the central government. 

“We have had a consensus in the FIAC over a month back that for the time being, the EPFO should not invest in private sector bonds,” the official said.

The EPFO follows a set pattern of investment, notified by the labour and employment ministry following consultations from the ministry of finance. It invests the incremental corpus, which is essentially the provident fund savings of private sector workers, in various instruments such as equity, debt, government securities and others. 

At present, the EPFO is mandated to invest 20-45 per cent of its incremental funds in debt-related instruments, according to its pattern of investment. This includes both private and public sector bonds such as that issued by commercial banks, mutual funds and non-banking financial companies (NBFCs). The crisis in Infrastructure Leasing and Financial Services as well as top NBFCs, such as DHFL, has led to rising risks for investors in this sector. 

“We will not pare our investments in corporate bonds, but when it comes to private bonds, the scenario doesn’t look rosy. There are not enough bonds in the market with reasonable yields and maturity. We want to ensure that our investments do not go bad as it’s a matter about social security of millions of people,” the EPFO official said. 

Around 10 per cent or Rs 10 trillion worth of corporate bonds were reportedly under watch of rating agencies in 2018-19.