The rate of interest has been steadily declining. From 12 per cent, which was being paid since 1989-90, the rate was reduced to 11 per cent from July ’00 and was further reduced to 9.5 per cent from the current financial year.
The meeting while declaring the interest rate will have to take into consideration the continued fall in yield on bonds and securities during ’00 and ’01 due to easy liquidity, poor credit offtake, cut in cash reserve ratio (CRR) by Reserve Bank of India (RBI) and other factors.
According to a note prepared by the EPF organisation for the meeting, if the interest rate on Special Deposit Schemes (SDS) is brought down by the government keeping in view the recommendation on the reduction in small saving rate, the estimated yield by way of interest during ’02-03 on investment would be reduced substantially.
The 1-per cent reduction in SDS interest rate will cause reduction in total income to the tune of Rs 476.84 crore, the note says, adding “with a profitable earning, we may be able to manage to service the members with the payment of interest equivalent to SDS rates for monthly balance for ’02-03.”
In view of the apprehension of further fall in the interest rate as a result of reduction in the SDS interest rates, trade unions are likely to demand that EPF funds be deposited in high-yield government funds instead of SDS.
Hind Mazdoor Sabha (HMS) secretary AD Nagpal, who is a member of the board of trustees, says “Let the funds be kept with RBI which pays interest of 1.5 per cent more on its employees’ provident fund. Instead of the State Bank at present, RBI can be entrusted with the portfolio management of the EPF as it was doing some years back.”
The corpus of EPF was placed at Rs 59,938.63 crore as on December 31, 01. Of this, 79.55 per cent is in investment holding in SDS, 8.18 per cent in public sector and financial institutions, 7.06 per cent in central government loans, 3.95 per cent in state government loans and 1.26 per cent in government guaranteed loans.