FinMin wants EPFO rate to remain 8.75%

The finance ministry wants Employees' Provident Fund Organisation (EPFO) to retain 8.75 per cent  rate of interest on provident fund (PF) deposits for 2015-16 although the retirement fund body is in a position to give better returns to its over 50 million subscribers.

The  EPFO has provided 8.75 per cent rate of interest on PF deposits for previous two financial years — 2013-14 and 2014-15.

“During a recent meeting of finance ministry and labour ministry top officials, of the former urged the latter that the EPFO should retain its 8.75 per cent interest on deposits for the current fiscal as well in view of the government's intention to reduce rate of returns on small saving schemes and PPF," a source said.

The source further said, “EPFO has already worked out the income projection for the current fiscal, on the basis of which it can provide higher rate of returns than 8.75 per cent provided in the previous two financial years.”

However, the source said that it is unlikely that the proposal for fixing interest rate will come up in the next meeting of EPFO trustees' scheduled on December 9 in view of the ongoing winter session of Parliament.

The finance Ministry has indicated that it may revise downwards the interest rates on savings schemes to nudge banks to bring down lending rates.

The Reserve Bank of India has cut interest rates by a total of 1.25 per cent this year, but banks have passed on less than that to borrowers, citing higher cost of funds as bank deposits have to compete with small savings schemes.

After RBI cut interest rate by 0.50 per cent in September end, the Finance Ministry had said that it will review rate of interest on small savings scheme.

These schemes include Post Office Monthly Income Scheme (MIS), Public Provident Fund (PPF), Post Office Time Deposit Scheme, Senior Citizen’s Savings Scheme, Post Office Savings Account, and Sukanya Samriddhi Account.

Finance Minister Arun Jaitley had recently said that the government will bring down interest rates on small savings "cautiously" so as to protect the interest of weaker and vulnerable sections.

Sukanya Samriddhi Scheme currently gives the highest interest rate of 9.2 per cent to incentivise the people investing in the name of girl child.

With small saving deposits commanding a rate of 8.7-9.3 per cent, banks have been reluctant to transmit the entire policy rate reduction by the Reserve Bank to borrowers.

However, fixing the interest on EPF solely depends on the EPFO's apex decision making body the Central Board of Trustees (CBT) headed by the Labour Minister as the body provides rate of return from its own income.