EPFO defers decision on PF interest rate for 2010-11

The EPFO on Friday deferred a decision on interest rate on provident fund deposits for 2010-11 following pressure from trade unions that want rates to be raised to 9.5-10.5 per cent from 8.5 per cent.

The Central Board of Trustees, the apex decision making body of the Employees Provident Fund Organisation, however, allowed the organisation to invest funds in corporate bonds of joint venture companies where government holding is at least 26 per cent, an official spokesman said.

The CBT meeting, which was chaired by Labour and Employment Minister Mallikarjun Kharge, also cleared the proposal for raising insurance benefit under Employees Deposit Linked Insurance scheme from Rs 60,000 to Rs 1,00,000. The decision on the interest rates, which will have implications for 4.7 crore subscribers would be taken at the next meeting of the CBT, the spokesman said. The date for the next meeting is yet to be fixed. The members will meet Finance Minister Pranab Mukherjee to discuss the modalities for bridging the deficit, the spokesman said.

The EPFO currently has a corpus of about Rs 2500 billion (Rs 2,50,000 crore) and, according to the official calculations, the payment of interest rate of 8.5 per cent, the same as was given during the past five years, would ensure a surplus of Rs 1.53 billion (Rs 15.26 crore). As payment of higher interest of 8.75 per cent would have resulted in a deficit of Rs 42.62 billion (Rs 426.23 crore), the CBT deferred the decision. The demand of trade unions to raise the interest rate to 9.5-10.5 per cent would have caused a bigger hole in the EPFO treasury.