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9% interest rate by EPFO not feasible: K K Jalan

Interview with Commissioner, Central Provident Fund

Somesh Jha  |  New Delhi 

K K Jalan
K K Jalan

Central Provident Fund Commissioner K K Jalan talks of what has been achieved in the Employees’ Provident Fund Organisation (EPFO) since he took charge a year earlier. Edited excerpts of a talk with Somesh Jha:

There are reports that EPFO is planning to give a nine per cent interest rate to subscribers this financial year. Is this feasible?

I don’t know where this news came from. We have never calculated this. Overall, interest rates are going down; debt instruments are not earning that much. When the equity is up, debt instruments are usually down. So, I don’t think we will be able to give that much.

What could be the loss, if you give nine per cent?

I have not done the calculations. This has not been discussed anywhere and calculations are difficult at this stage.

How do EPFO’s financials stand at this stage?

At present, we have a fund size of Rs 7.5 lakh crore. Of this, roughly around Rs 2 lakh crore we get from exempted establishments and Rs 5.5 lakh crore from EPFO directly. We are only investing in debt instruments and not in equity.

There are reports that the finance ministry has proposed allowing EPFO to invest 30 per cent of its funds in the equity market.

The Central Board of Trustees (CBT) decided in its wisdom, based on past experience, that equity can sometimes go haywire. However, around the globe, a sizeble part of pension funds is invested in equity and, therefore, there should not be that fear. But, we must also have a sound methodology for investing in equity. Any such decision is always subject to the CBT’s approval.

Even Sebi Chairman U K Sinha had mooted the idea of investing EPFO funds in the equity market.

Till now, the CBT has not agreed to this. Maybe in future, when our fund size increases and we don’t have avenues in investment, then we will be forced to invest in equity. Hence, you can never say that we will never invest in equity. But if you do, you will have to take a lot of precautions.

So, is that option open?

If the CBT decides, it is possible.

Recently, an EPFO circular ordered a compliance review of all the Sahara group firms.

The case of the Sahara group of companies was stayed by the EPF tribunal recently and we have approached the high court in Lucknow for an early decision. The HC had asked the tribunal to decide within four months and when this didn’t happen, we approached the HC, so that we can ensure social security to Sahara employees.

Has the compliance review process been initiated?

We have not been able to lay hands on the records because of the tribunal’s stay.

What went wrong in Sahara’s case?

I would not conjecture at this stage; it is a matter of court interpretation. We feel the group has not covered that many employees as it claims in the media. Is it covering all the employees it claims? That is the issue.

How do you plan to tackle such cases in the future?

If we strengthen the central data and analysis wing, that will help. We will have to also create an intelligence wing to look into all these cases.

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.

That issue has unnecessarily been brought into the picture. No doubt, the CBT has directed that beyond the two per cent (of NPAs), we should not invest in these banks but there are different ways of investing. In any case, I don’t think banks are not improving. They are also rearranging their assets and doing things to come out of this problem.

Would it affect EPFO in any manner?

If this problem persists, we will go back to the finance, investment and audit committee of the CBT to relax certain guidelines. We will review. We don’t feel it is a crisis for the time being.

What is EPFO doing on the compliance side?

One is that we launched electronic challan-cum-returns. We want to now launch its improved version. The executive committee recently approved the setting up of a central analysis and data wing, to look into various data and see how we can capture the compliance issue.

You have completed a year as the Central PF Commissioner. What are the challenges the body has faced under you?

EPFO had decided in 1995 to become fully computerised. Actually, the computerisation was (still only) 15-20% and there was a problem area in most of the manual work. This became a major challenge for me. I would say that the staff quality is very good; they are also responsive to things.

When I joined, a lot of grievances were also pending and we were not responding to them in a manner the organisation should do. Therefore, that was also an issue. We had not held regular meetings at the field level and, naturally, some issues were pending in that area.

What is the current level of progress?

The number of pending grievances was 25,000 when I joined last year. This has come down to less than 5,000. Second, of 133 offices all over the country, around 110 havee no grievances pending for more than 15 days.

Therefore, people have become responsive and we are tackling grievances in a much better way. The claim settlement time has been officially reduced to 20 days from 30 days.

Has far has EPFO come on computerisation?

In the past year, we launched a number of softwares relating to the online transfer claim portal and for updation of accounts. I am proud to say it is the first time in the history of EPFO that more than 80% of the accounts have been updated for 2013-14. This updation usually takes place till September but we have done 80% of our work by May. Earlier, it used to take years to complete this process, sometimes even three years.

Third, pension distribution has started taking place on the first of the month while we capture the core banking account number of every pensioner - this is something we did over a year. We also launched a process to monitor the exempted establishments online.

We looked at them for the first time. We launched two more softwares internally - one for damages or penalties in which if people have deposited the amount late, the software can calculate the penalty.

That resulted in sending instant notices to various employees. We also launched a compliance software and through this, we put online all the legal cases pending with us. Despite all this, I'd say our computerisation is only 25-30%. I am yet to do the major part.

What is the road ahead?

We are launching the universal accounting number. Online allotment of PF codes is happening next week. We have sorted out the National Pension System issue of the labour ministry. From 2004, the NPS issue of 25,000 employees was pending in the organisation and this was to be sorted out this year. We want all our payments to be through the electronic mode and we have reached around 95%.

We are also re-visiting ways through which payment could be made through any bank and not only the State Bank of India. We have also planned for a double-entry accounting system. And, for every process, we have given a timeline. The EPFO is working towards a pension re-engineering process, so that the pension system goes online. We have a lot of work ahead.

What is the pension re-engineering process that you stated?

If we are dealing with 30 million people, we must know if a person is about to retire. This system, which will be put in place, will automatically generate this information and also do the calculation, making the process easier.

What happens to the large number of contract workers? Are they covered under EPFO?

We said a few months earlier that any company with more than 500 employees is outsourcing a lot of work and the EPFO must go to every such firm and see that contract workers are covered. In government organisations, there is lot of non-coverage on the PF side. if that is checked, contract workers will come into coverage.

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First Published: Sat, June 28 2014. 00:27 IST