Enhance exposure in Housing finance firms: PMO to EPFO

Retirement fund body EPFO is considering significantly increasing its exposure to housing finance companies to comply with PMO's suggestion to fund low cost housing in the country.
The proposal to relax norms for investing in AA+ rated housing finance companies is likely to be taken up at the meeting of the Employees' Provident Fund Organisation (EPFO) apex decision making body, the Central Board of Trustees (CBT) on December 19, as per agenda of the meeting.
The Prime Minister's Office (PMO) has suggested that EPFO should deploy 15 per cent of its funds as loan for low cost housing saying it would generate a credit flow of Rs 70,000 crore. The initiative is expected to create 3.5 lakh additional low cost homes.

According to PMO's note, if insurance and pension funds deploy 15 per cent of their fund for the purpose, a total credit flow of Rs 2.3 Lakh crore can be made available to build 11.5 lakh new low-cost homes.
The PMO's note further suggests that in case EPFO fails to invest 15 per cent of its funds in low cost housing then it should be forced to invest the shortfall into Rural Infrastructure Development Fund (RIDF) NABARD bonds in line with priority sector limit shortfall guidelines for Banks.
However, EPFO is of the view that disbursing loan is a specialised job normally undertaken by Banks and Housing Finance Companies and is an area totally unknown to it in terms of experience.

According to the agenda, the EPFO has also expressed its inability to collaborate with public sector developers for construction of houses as it is a specialised job.

Considering the priority of the government and the low risk associated with the housing loan, EPFO has proposed to CBT to consider investing in private housing finance companies with upto AA+ rating without any restrictions as eligibility criteria.
These companies will primarily be those in which any state-owned firm has more than 25 per cent of equity holding. This can also be extended to such companies in which dual AAA rated private company has holding of more 25 per cent of the share.

These relaxed norms will make more companies eligible for EPFO investment. These private housing finance companies include GIC Housing, Canara Home Finance, ICICI Home Finance, Gruh Finance and Sundram Paribar.
In the present scenario, EPFO can invest in dual AAA rated bonds of companies. It has invested in HUDCO, HDFC, LIC Housing Finance, National Housing Bank, PNB Housing Finance, Dewan, Housing Finance Ltd and IndiaBulls Housing.
Besides, EPFO has also proposed to reduce minimum service period for withdrawing money for housing finances.