Some EPF assets may turn sticky

The state run Employees Provident Fund (EPF) have invested close to Rs 60,000 crore in poor quality assets, and the possibility of this entire investment turning bad was looming large.

"The state run Employees Provident Fund was a time bomb ticking to explode anytime," claimed T K Banerjee, member- Life, of the Insurance Regulatory development Authority (IRDA), said at a meeting at the Bengal Chamber of Commerce & Industries (BCCI).

"Quality of assets in which the EPFs invests are a major concern. A large part of it is held in the form of state government guaranteed bonds issued by various state undertaking and development projects such as state electricity boards and river valley projects," he said to back his claim.

"There is a grave risk of default associated with these near-bankrupt state undertakings. One estimate puts the value if these state government guaranteed bonds in the range of Rs 60,000 crore," he alleged.

Further, there was the interest rate gap between the funds earnings and actual payout.

PFs were assuring a tax-free 9.5 per cent return whereas the interest rate on current investments was around 7 per cent. A two per cent gap on PFs would mean loss of about Rs 2,000 crore each year.

"If this gap was allowed to persist despite a falling interest rate regime, a massive government bailout would be required fairly soon," Banerjee warned.

Banerjee pointed out the pension bill of the government rose from Rs 2138 crore in 1990-91 to Rs 15,466 crore in 2003-04.

Over the six-years period, 1995 to 2002, the consolidated pension liabilities of the 29 major states rose 3.5 times.

The situation was particularly grave for some states like Bihar where the pension bill was 13.78 per cent of the total revenue expenditure (TRE) in 2001-02.

For Jammu and Kashmir it rose to 9.79 per cent and for Haryana to 6.62 per cent of TRE. West Bengal's bill was 7.15 per cent while Orissa's cost was 9.7 per cent of TRE.