EPFO likely to recommend 8.6% interest rate this year

After getting lower returns in 2011-12, there may be some good news for the around 61 million Employees’ Provident Fund Organisation (EPFO) members. It is expected to recommend an 8.6 per cent rate of interest for this financial year. In 2011-12, it was 8.25 per cent, 1.25 percentage points lower than the previous year.

However, the EPFO recommendations require approval of its Central Board of Trustees (CBT), which is to meet next month. The CBT has representatives of employers, employees and the ministry of labour and employment. Earlier in the year, while deciding on the rate of interest payable for 2011-12, the CBT failed to reach any consensus and the decision was referred to the finance ministry, which fixed the rate at 8.25 per cent.

Last year, EPFO had cited a shortage of funds for the lower rate. “The calculations show they can increase the rate of interest this financial year to 8.6 per cent,” said a source with direct knowledge of the development.

EPFO had stated a shortfall of Rs 526 crore if it was to provide 8.5 per cent as in 2010-11. Sources said a major source to pay for the increase had come from the ministry of finance’s decision to increase the rate of interest on the Special Deposit Scheme (SDS) from eight to 8.6 per cent. EPFO has around Rs 55,000 crore parked in SDS.

An increase in this year’s interest rate would also reduce the gap between the rate being paid under the Public Provident Fund (PPF) and the EPFO. The government had recently increased the rate of interest payable on PPF deposits from 8.6 to 8.8 for this financial year.