EPFO may withdraw Rs55,000 crore from Special Deposit Scheme

24 Sep 2008

1

Mumbai: The Employees Provident Fund Organisation (EPFO), the second largest financial institution after LIC in terms of funds under management, has threatened to withdraw its Rs55,000 crore investment in the Special Deposit Scheme (SDS) run by the finance ministry.

This was announced by labour minister Oscar Fernandes who last week held a meeting with finance minister P Chidambaram and leaders of labour unions, including AITUC, HMS, BMS and UTUC (LS) - all members of the Central Board of Trustees  of the EPFO.

EPFO, which manages a total of Rs2,40,000 crore, has invested around Rs55,000 crore in the SDS, which gives it a return of eight per cent.

The SDS earned 12 per cent interest in 2000 and the rate was reduced to 11 per cent in 2001. The interest rates were further reduced to eight per cent in 2003.

The finance ministry had stopped accepting fresh deposits from FPFO into the SDS in 1997. Finance minister P Chidambaram reportedly holds the view that the government can raise funds at rates lower than the eight per cent it pays on the SDS.

Obviously, the labour ministry and the finance ministry differ on the interest rate for the Employees Provident Fund.

While the labour ministry has been pushing for a hike the interest rate for the Rs53,000 crore invested in the SDS to 8.8-9.0 per cent, the finance ministry is understood to be disinclined to any upward revision of rates.

''We may take back our entire corpus invested in the SDS if the finance ministry does not agree to an upward revision of the interest rate under the scheme,'' said Fernandes.

EPFO manages another Rs80,000 crore pension funds collected by it after the New Pension Scheme (NPS) was introduced in 1995, which is also in the central government account. EPFO had recently appointed four fund managers earlier this month.

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