High-level panel to review RBI advisory on EPFO's investment practices

The committee with members from RBI, Labour and Finance Ministries will draft a roadmap to improve EPFO's fund management and accounting practices

The Employees’ Provident Fund Organisation (EPFO) has decided to form a high-powered committee to study the Reserve Bank of India’s (RBI) recommendations for improving the ₹25 trillion retirement fund’s investment management and accounting practices, Business Standard has learnt.  

The RBI had made a slew of suggestions on the functioning of the country’s largest retirement fund, following a request by the union labour ministry to lend its expertise and help identify gaps in EPFO’s investment strategy and fund management practices, including accounting, risk management, and internal governance.  

The high-powered committee, which will include representatives from the central bank as well as the ministries of finance, and labour and employment, would also be tasked with devising a roadmap to implement the RBI’s suggestions. The panel is expected to submit its report by the end of this financial year, so that the EPFO could incorporate the requisite improvements in its systems by the turn of 2026-27.  

The RBI had taken note of the pressure to maintain and even raise the returns on EPF savings with annual payouts of 8.15 per cent-8.25 per cent even as yields on government bonds, where a bulk of its corpus is invested, have fallen much below those levels. The gap has been met with realization of capital gains on equity investments each year. 

The RBI has raised concerns about the EPFO’s reliance on redeeming its equity holdings “programmatically without regard to market dynamics”, with the intention of distributing only realised earnings to maintain high interest rate. It also advised EPFO to switch to the best practice of applying asset allocation rules on all its outstanding investments instead of incremental flows received each year, and use ‘mark to market’ norms for valuing its holdings.   

The RBI’s report was also placed and discussed on Monday by the Central Board of Trustees (CBT), the EPFO’s apex decision making body that is chaired by the Union Labour and Employment Minister Mansukh Mandaviya.  

An employee union representative said the RBI had flagged pertinent issues for the board’s attention. “We have the pressure to maintain a high interest rate for our subscribers at a time when the yields on government bonds are falling. So we need a comprehensive relook at the alternatives and reorient our investment strategies. The high powered committee will look into all these issues,” he said. 

“The suggestions given by the RBI are quite progressive in nature and do provide a blueprint for us to follow in the coming days so as to secure the retirement benefits of millions of subscribers. The report by the central bank largely aligns with our vision of maximising the benefits for our subscribers,” another source said.  

The RBI has also mooted a separate investment pattern for the EPFO’s three different schemes’ corpus in line with the disparate liabilities of each scheme instead of deploying those funds as one common pool into the same set of investment instruments. The three social security schemes operated by the EPFO are the provident fund (EPF), Employees’ Pension Scheme (EPS) and the Employees’ Deposit Linked Insurance (EDLI) scheme.  

 

The EPFO allocates 45-65 per cent of fresh accretions to government securities, 20-45 per cent to debt instruments, 5-15 per cent to equities via index funds, and zero to 5 per cent to short-term debt instruments. 

EPFO liberalises part withdrawals 

 

The board of retirement fund body EPFO on Monday approved liberalised part withdrawals for its more than 70 million subscribers, allowing up to 100 per cent EPF withdrawal. (PTI)