The government may have pressed ahead with the appointment of new fund managers for the Rs 2,40,000-crore Employees? Provident Fund Organisation (EPFO), despite reservations by trade unions and the finance ministry. But with barely a week to go before EPFO?s agreement with its current monopoly fund manager – the State Bank of India (SBI)? expires on August 31, it turns out that the transition to the new regime may not be smooth.
Labour minister Oscar Fernandes had announced HSBC AMC, ICICI Prudential AMC, SBI and Reliance Capital AMC as the fund managers for EPFO, after a meeting of the Central Board of Trustees on July 29. The formula for allocating the fresh inflows into EPFO?s coffers was arrived at this week and approved by the minister.
The lowest financial bidder, HSBC AMC, will manage the entire funds flowing into the Employees? Pension Scheme 1995 (EPS ?95) and the Employees? Deposit Linked Insurance Scheme (EDLI) of 1971. These are the two schemes apart from the provident fund administered by EPFO, annual inflows into which add up to Rs 10,000 crore.
ICICI Prudential AMC has been allocated 40% of the incremental inflows into the EPF as well as the EPFO?s own staff PF and gratuity funds. This amounts to roughly Rs 8,000 crore annually. Reliance Capital AMC and SBI have been allocated 30% each (Rs 6,500-7,000 crore) of the EPF inflows. The allocation has been made in inverse proportion to the financial bids by the managers.
Formal offer letters have already been sent to the four managers for their acceptance, following which the Centre would sign an agreement with the fund managers. Friday was the last day for the fund managers to accept the EPFO?s offer letter. But at the time of going to press, The Financial Express could only confirm the acceptance of offers by two of the four players?HSBC and ICICI Prudential.
In case Reliance Capital and SBI haven?t accepted their offer letters by Friday midnight, the government may be forced to take a fresh look at the bids of the other players who did not make it to the July 29 list. This would give the Centre precious little time to take the necessary steps for the transition to multiple fund managers by September 1.
It is possible that the fund managers may not evince interest in actually taking up the EPFO?s offer because a key assumption that led to fund houses bidding unprecedented low (even zero) fees has turned out to be fallacious. Fund managers expected the EPF monies to come into their coffers, giving them a chance to make money even on the free floats.
It has been clarified that the funds will not be moved out of the investment accounts where they are deposited by employers. ?The money would remain with the EPFO?s banker, SBI. Fund managers would be authorized to operate the account and issue cheques to purchase securities,? a senior government official said.
Meanwhile, SBI, which will retain EPFO?s banking business for now but would have to share its fund management role with the other players, is learnt to be ?unhappy? about the turn of events. Though it was served a severance notice, effective September 1, by EPFO three months back, the bank is playing hardball on the actual transfer of funds and transition to the new system.
Incidentally, the Central Vigilance Commissioner has sought a status report on the selection process for the fund managers in light of complaints from unions as well as disqualified bidders.
A top CVC official said, ?We have asked the EPFO?s vigilance officer to submit a status report on the process. If that is not satisfactory, we would institute a full-fledged probe.?
While government officials are not overtly worried about the process per se, the late entry of Reliance Capital AMC into the list may become a problem. Clearly, this reform step could still come undone.
