Labour ministry pushes for better EPF interest rate

Last Updated: Mon, May 23, 2011 19:21 hrs

The Employees’ Provident Fund Organisation (EPFO) is crunching its numbers under pressure for sustaining a 9.5 per cent interest rate in the current financial year.

A senior EPFO official told Business Standard the organisation was banking on the money saved in 2010-11, inoperative accounts and better returns on short-term investments for this purpose.

The official, however, indicated that though final projection was yet to be done for 2011-12, the rate of interest could at best be nine per cent.

Labour Secretary P C Chaturvedi said, “We want to give as much as we can. We have already given 9.5 per cent in 2010-11. We will try and perform better in 2011-12.”

He said the effort would be to give as much as possible. Last year, the organisation had utilised surplus of around Rs 1,700 crore accumulated over a number of years to raise the interest rate from 8.5 per cent to 9.5 per cent. “This year, we have Rs 150-200 crore left, which we can utilise,” he added.

Further, the projected income of EPFO was likely to go up from Rs 15,036 crore last year to around Rs 17,000 crore in 2011-12. The official said the past experience suggested that when interest rates were rising, better returns on short-term investments had the possibility of giving an additional 10 per cent on this amount. This would mean another Rs 170 crore more, he added.

With this, the official said, EPFO had Rs 15,000 crore in the inoperative account, of which, Rs 10,000 crore is expected to be withdrawn leaving about Rs 5,000 crore. This may an give additional Rs 300 crore, which might raise the interest rate by 0.25 per cent over 8.5 per cent.

Under the new EPFO norms, the subscribers will not get any return if the account has been inoperative for more than three years. This has been done to stop people from keeping their money parked in EPF for better returns.

A total of around Rs 650 crore through additional resources could allow a 0.5 per cent increase over 8.5 per cent given in 2009-10, said the official. This means at best, the interest rate in 2011-12 could be projected to be at nine per cent, he indicated.

The EPFO was making its calculations for projection of interest rate for the current financial year, which was likely to be taken up for discussion in the meeting of the Central Board of Trustees next month, said the official.

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