EPFO proposes cutting interest rate to 8.1%, expects ‘decrease’ in income

The Employees Provident Fund Organization has proposed to cut the interest rate on Provident Fund deposits to its lowest level in more than four decades.

An interest rate of 8.1% has been recommended for EPFO ​​subscribers for the year 2021-22, compared to 8.5% in the previous 2020-21, according to a press release from the Ministry of Labor and Employment. ‘Use.

“For FY22, EPFO ​​has decided to liquidate part of its equity investments and the recommended interest rate is the result of the combined income from interest received on debt investments as well as income earned on investments in action,” he said.

The rate will now be approved by the Ministry of Finance.

This is the lowest interest rate offered by EPFO ​​since 1977-78. However, it remains higher than the returns offered by instruments such as government securities and bank deposits. For example, the State Bank of India offers an interest rate of between 5.1 and 5.4% on term deposits of 1 to 10 years.

Rates in the economy fell sharply as the central bank cut its benchmark repo rate to a record low of 4% amid the Covid crisis. With the economic recovery incomplete, rates are unlikely to rise quickly.

KE Raghunathan, a member of EPFO’s central board, told BloombergQuint that they cut rates bearing in mind that revenues could fall this year due to the ongoing crisis conditions between Russia and Ukraine. “This year, we will achieve a surplus of Rs 450 crore at 8.1%. If we had maintained 8.5%, we would have been at a deficit of Rs 3,500 crore.”

Raghunathan is part of the EPFO ​​sub-committee that met in Guwahati. The 2-day annual meeting ended on Saturday.

The meeting was also attended by Labor Minister Bhupendra Yadav, State Minister for Labor and Employment Rameshwar Teli, Labor and Employment Secretary Sunil Barthwal and PF Central Commissioner Neelam Shammi Rao.

The Board also approved revised FY21 estimates and FY23 budget estimates for EPFO-administered plans.

“The Board of Directors has been informed that the redemption of the equity investment has been effected during the month of February 2022 resulting in the realization of capital gains of Rs. 5529.7 crore which will be included in revenue for fiscal year 22,” the statement read. “The annualized rate of return on this investment was 13.91%, the highest in three years.”

The board also ratified the decision to redeem Air India’s non-convertible debentures in EPFO’s portfolio. This takeover had helped EPFO ​​realize Rs 8,944.32 crore against the face value of Rs 7,772.50 crore, according to the release.

Sallie R. Loera