EPFO unlikely to approve investment in equity market

Its Central Board of Trustees will meet on Friday

The Employees Provident Fund Organisation (EPFO) is likely not going to recommend investing a portion of its funds in the equity market, according to sources.

“Since the equity market is very volatile, it involves risk as we need to take care of the large savings by public. It is difficult that a decision in this direction might be taken in this meeting,” said an EPFO official.

The EPFO’s top decision making body, Central Board of Trustees, is going to hold its 125th meeting  on Friday. In its meeting in August, the body had decided not to invest in equity.

“After discussions, the board recommended there shall be no investment either in equities or in exchange-traded funds,” said the minutes of the 124th meeting held under the chairmanship of Narendra Singh Tomar, then labour minister.

However, after the Cabinet reshuffle in November, Bandaru Dattatreya took charge of the union labour ministry.

Another EPFO source told Business Standard that the new minister may also ask the retirement body to set up a committee to look into feasibility in investing in the equity market.

A top labour ministry official however, said, “It is highly unlikely that the union trade unions are going to agree to this proposal.”

The finance ministry in June had suggested a revised investment pattern wherein it had mooted investing up to 15 per cent in direct equity.

Following this, the EPFO had formed a four-member committee to prepare a report based on the government’s suggestions.

The Finance Investment and Audit Committee of EPFO had also given a few recommendations to the earlier CBT in August, suggesting a few more options for EPFO’s investments including equity, infrastructure and real estate related products  to beat inflation.

According to the committee, EPFO’s Rs  100 investment in 2005 became Rs  193 in 2013 at EPFO’s rate of interest in nominal terms. However, “because of inflation, its value is reduced to only Rs  97.” It observed that the EPFO is not “responding to periodic advantages.” However, the CBT had deferred presentation by the committee this in its last meeting.

Another crucial agenda that the body will pursue is easing norms for investment in banks deposits. According to the present norms, the EPFO only deposits money in banks which earned  profitability for three continuous years and have net non-performing assets (NPAs) within two per cent of their credit. The CBT will consider relaxing these norms, sources said.

Many public sector banks, including State Bank of India, have become ineligible for EPFO investments because their net non-performing assets (NPAs) comprise over two per cent of their advances.

The CBT will also discuss settlement of claims and payments to EPFO’s beneficiaries within 20 days from the existing 30 days under the Employees Provident Fund (EPF), Employees Pension and Employees’ Deposit Linked Insurance schemes.

Another crucial issue of deploying EPFO funds in low-cost housing is also a part of the agenda. This holds significance as the proposal has come from the Prime Minister’s Office (PMO) which has proposed EPFO and insurance firms to deploy 15 per cent of its total funds towards loans for low-cost housing which is expected to build 3,50,000 additional homes.

The trustees will also discuss allowing multiple bankers to handle its provident fund collections.

At present, the SBI is the only bank which does so. “Proposal for amendment in EPF Scheme, 1952 for engaging scheduled commercial banks, in addition to SBI for collection of contribution,” is one the meeting’s agenda. “If an employer has an account with another bank, he wouldn’t have to take the pain to go to SBI for withdrawing provident fund return,” said a source.