EPFOs hunt for new bankers continues...

Written by Vikas Dhoot | New Delhi | Updated: Dec 30 2008, 05:57am hrs
Nine months after the Finance and Investment Committee (FIC) of the Employees Provident Fund Organisation (EPFO) called for abolishing the State Bank of Indias 56-year monopoly on its banking business, the government is still working out the nitty-gritties of what switching to multiple bankers will entail.

To study the impact and feasibility of introducing multiple bankers and formulate the modalities for the transition, the FIC has now constituted a three-member panel chaired by the EPFOs financial advisor and chief accounts officer, which is expected to submit its report by the end of December.

In June 2008, EPFO had approached the managing directors of top ten public sector banks in the country after studying their branch networks. Inviting expressions of interest from the banks, the EPFO had outlined its procedures and business requirements and the banks were told to respond keeping in mind the EPFOs existing arrangements with SBI for collecting PF contributions and reconciling accounts.

Of the ten banks, only seven responded. These included Indian Bank, Bank of Baroda, Canara Bank, Union Bank of India, Corporation Bank, Punjab National Bank and Bank of India.

However, their responses were rather incomplete barring the Union Bank of India (UBI), none of them specified the service charges EPFO would have to pay. Some didnt even mention the time they would take to transfer PF contributions to the investment accounts or the time they would take to send physical challans to local PF offices.

UBI, which has 2,529 branches across 20 states in the country, offered to act as EPFOs collection bank with a service charge of Rs 1.52 for every thousand rupees collected. The bank, which is incidentally also the labour ministrys banker, made a detailed presentation on what it could offer, to senior EPFO and ministry officials.

With EPFOs accounting and reconciliation systems still very archaic, the bank however, sought to understand EPFOs business processes better before it could suggest customized solutions as per their business needs. With lakhs of transactions at stake, the bank said it would develop software and conduct a trial run before beginning actual collections.

With this in mind, the FIC in its meeting in November decided that getting new bankers may not be a usual kind of exercise of calling for the tenders and short listing successful bidders.

Moreover, more than one bank at a time may be difficult to introduce as the collections have to hit the accounts centrally before it goes for investment. In certain accounts like EPF and Employees Pension Scheme, almost for a fortnight, withdrawals are more than the receipts, putting the account centrally into negative balances, the FIC noted.

While SBI provides an overdraft facility to EPFO against a centralised fixed deposit to deal with such negative balances, it has been putting pressure on EPFO to review the system and arrange for an overdraft facility at the branch level in order to comply with Basel II norms.

At the meeting, the EPFOs chief accounts officer told the FIC that in case it decides to appoint more than one bank, the words sole banking in the arrangement with SBI would have to be removed.

FIC members, however, asked for EPFO to proceed without haste. The banks should understand EPFOs functioning first. EPFO will have to gear up to reconcile accounts with more than one bank and the softwares on both sides will have to be able to talk to each other, a board member told FE.

When members questioned if EPFO can handle multiple bankers at one go, the organisations financial advisor said it would hopefully be able to handle two banks at a time with the present system of accounting and reconciliation.

Finally, it was decided that all interested banks should be asked to make presentations before an evaluation is made. The three-member committee appointed by the FIC to arrive at the modalities for appointing new bankers is expected to turn in its report by the end of this week.