With the Left and the BJP joining hands yet again to decry the government’s decision of allowing private sector fund managers to invest 4.5 crore workers’ retirement savings with the Employees’ Provident Fund Organisation (EPFO), the PMO has reacted with alacrity and sought an explanation from the labour ministry, especially in light of the controversies surrounding the fund managers’ selection process.
Minister of state for labour and employment Oscar Fernandes, who cleared the fund managers’ appointment by a majority decision in last week’s meeting of EPFO’s Central Board of Trustees, had a meeting on the subject in the PMO on Thursday. While the Board was expected to appoint three fund managers—HSBC AMC, ICICI Prudential AMC and SBI—recommended by its finance and investment committee, Fernandes sprung a surprise towards the end of the meeting by appointing four managers instead of three.
The last-minute decision on the number of managers to be appointed, paved the way for Reliance Capital AMC to be included in the final list. This has given more fodder to the Left parties, who were expected to oppose private players in any case. In a statement issued after the board meeting, the CPI (M) politbureau said, “The reported late selection of Reliance Capital was an indication of the cost of support to this tainted government.” While the Left asked the Centre to refrain from implementing the ‘anti-worker’ decision, CPI national secretary D Raja promised to rake up the issue in Parliament and during the nationwide general strike on August 20. Though the BJP is not averse to reforms, it termed the move as economic prize being given to private companies for the kind of politics the country saw in the past 15 days.
A government official admits that the entry of private fund managers was not expected to be smooth, given the employee unions’ opposition. The entry of Reliance Capital AMC in the circumstances has made the process even stormier, the official submitted. Reliance and SBI’s financial bids were equal, but the FIC had suggested SBI instead of Reliance as the bank had a better technical score.
While Reliance Capital’s entry has become a political hot potato, some of the fund managers who didn’t make it into the final list are also upset. HDFC AMC and Birla Sun Life AMC, who were shortlisted after the technical evaluation round, but disqualified in the financial bidding round due to a ‘zero bid’ are crying foul. The two were disqualified on the basis of legal advice that suggested ‘zero bids be rejected’ since a binding contract can’t be entered into, unless there is a payment of consideration. The fund houses argue that handling such large assets would give them better economies of scale, which is a consideration by itself.
“We have got in touch with the EPFO and are seeking information about the selection process and the reasons behind our disqualification,” a senior Birla Sun Life official told FE. Incidentally, HDFC’s technical score of 76 was the same as ICICI Prudential’s and Birla Sun Life’s score of 71 was the same as HSBC AMC.
UTI AMC, which had the highest technical score (of 85) among the 17 players who were in the fray, is also learnt to be unhappy though its financial bid of 0.0625% was only lower than one player—Principal PNB AMC. Incidentally, Kotak Mahindra AMC had protested its disqualification on the basis of its technical evaluation score (67, as opposed to the threshold of 70), but was meaning to put in a zero financial bid as well.
Officials insist the selection process was transparent and shared with all bidders well in advance, but admit that the controversy over zero bids could have been avoided if their invalidity was specified at the request for proposal stage. Though an employer representative suggested in the board meeting that the zero bidders could have been called in and asked to charge a nominal fee, the idea was dismissed as the other bidders would have then protested.
That EPFO served a severance notice to its existing fund manager SBI even before appointing the new fund managers, has also been questioned. But officials point out that SBI had asked the EPFO to give them a ‘three months’ notice before they move out of their current monopoly.