A government official said the retirement fund would have incurred a loss had it retained the interest rate at last year’s level of 8.65 per cent.
New Delhi: The EPFO on Thursday recommended a 15 basis points (bps) cut in the interest rate on provident fund deposits to 8.5 per cent, a seven-year low, for the current fiscal (FY20) from 8.65 per cent in the previous fiscal (FY19.)
It is believed that the Central Board of Trustees (CBT) of the Employees’ Provident Fund Organisation has recommended a lower interest rate to make up for the poor returns on the fund’s investments and losses from bad investments in debt-ridden companies.
A government official said the retirement fund would have incurred a loss had it retained the interest rate at last year’s level of 8.65 per cent. “The EPFO would have left with a surplus of over Rs 300 crore if it had provided 8.55 per cent rate of interest on the EPF this fiscal. There would have been a deficit if the EPFO had provided a rate of more than 8.55 per cent for the current fiscal,” the official said.
A source said the EPFO’s earnings on debt market instruments, including government securities and fixed deposits, have been negatively impacted this fiscal. “It is also expected that investors would be forced to shift a portion of their investments in government securities and its newly launched debt funds and other instruments,” the source said.
The finance ministry has reportedly been pressing the EPFO to lower the rate to align it with the interest on the Centre’s small savings schemes. Anyway, a final call on the rates rests with the finance ministry.
Announcing the new rate after the CBT meeting, labour minister Santosh Gangwar said, “The EPFO has decided to provide 8.5 per cent interest rate on EPF deposits for 2019-20 in the CBT meeting today. The EPFO will have a surplus of over Rs 700 crore on providing 8.5 per cent rate of interest on EPF for this fiscal.”
When contacted for comments on the steep cut in the EPF rate, a government official clarified that “the government takes such decisions from time to time in line with market movement for aligning the EPF interest rate with other small saving schemes run by the government, such as public provident fund, post office saving schemes, national savings certificate and others.”