The Employees Provident Fund Organisation (EPFO) is likely to save around Rs 125 crore annually on transaction costs as it signed pacts with five more major banks — ICICI, HDFC, Axis, Kotak Mahindra and Bank of Baroda — for collection of contributions from employers and payment to beneficiaries at zero costs. The roping in of private banks for the job is unprecedented in the history of EPFO and the move is expected to help the retirement fund body to prune the administrative charges that it collects from the employers, from 0.65% of the wages now. “This will be a win-win for both the EPFO and the lenders. It will help administrative charges to come down,” labour minister Bandaru Dattatreya said at the agreement signing ceremony on Wednesday.
Kotak Mahindra Bank’s executive vice-president Raghavendra Singh said the tie-up will help expand the product basket and thus retain customer base. Having received flak from different quarters, EPFO reduced the administrative charges with effect from April this year from 0.85% earlier. The move helped around 6 lakh employers to save around Rs 1,000 crore annually.
The State Bank of India (SBI) used to do all the collection of dues and payments’ job earlier for EPFO and at Rs 12 per transaction, it used to cost around Rs 350 crore to the EPFO. In December last year, EPFO roped in four other public-sector banks — Punjab National Bank, Allahabad Bank, Indian Bank and Union Bank of India. These four banks continue to charge EPFO for all transactions at a lower rate than SBI.
EPFO was expecting that its annual transaction outgo would come down by half to Rs 175 crore before its Central Board of Trustees (CBT), the highest decision-making body of the EPFO, realised the need to rope in more banks and reduce the transaction cost further.
At its 216th meeting held in March this year, it approved engaging private-sector banks, having at least 0.5% of the EPFO collection customer base, for collection of contributions from employers and payment to beneficiaries at zero transaction costs.
“Following the tie-up with the private-sector banks, our transaction expenses will come down to `50 crore annually,” central provident fund commissioner V P Joy said.
EPFO is also trying to bring in seven other banks, which qualify for the CBT-set norms, on board and if that happens, its annual transaction cost will come down to a bare minimum, he said.
The tie-up will facilitate all the stakeholder of EPFO. Employers having accounts with these banks will be able to deposit EPF dues directly in EPFO’s account using internet banking on real-time basis instead of going through aggregator mode. It will also help the subscribers to get direct payments into their accounts.
A subscriber contributes 12% of her basic salary to the EPF and the employer makes a matching contribution. However, of the 12% employers’ contribution, 8.33% goes to the Employees’ Pension Scheme (EPS) and the remaining towards the PF account. Additionally, employers also pay 0.5% towards EDLI, 0.65% as EPF administrative charges and 0.01% as EDLI handling fee.
One of the largest social security providers, EPFO has a corpus of Rs 12 lakh crore and 4.5 crore contributing membership. It settles about 1.16 crore claims in a year and disburses about Rs 54,000 crore annually.