EPFO audit committee to meet on proposed interest rate cut: Report

Central retirement fund body, the Employees’ Provident Fund Organisation (EPFO) is reportedly looking to cut interest rate on savings to 8.5 percent for FY20.

The proposal was made in March, but has not yet been approved by the Finance Ministry, whose nod is needed before the Labour Ministry can notify the rate change.

The move for a new rate was determined based on FY20 earnings against pay outs made to 60 million subscribers despite the body struggling with return on investments and low cash flow.

The EPFO’s finance, investment and audit committee (FIAC), which had recommended the cut from 8.65 percent, is set to meet soon to assess its ability to pay declared interest, said a report by The Economic Times.

Moneycontrol could not independently verify the report.

“Disbursal of money based on the interest rate declared for last year will be difficult for EPFO as the cash flow has significantly reduced and liquidation of its funds will not be easy at the time of disbursal,” a source quoted in the report said.

Given the economic situation due to the coronavirus pandemic, the government announced various measures to assure employees and employers – lowering contribution on basic pay to 10 percent from 12 percent, and allowing subscribers to conduct non-refundable withdrawals of up to three months basic salary or 75 percent of total PF contribution – whichever is lower to supplement cash requirements during the lockdown period.

However, all this has further hit cash flows for the organisation; even as market volatility due to COVID-19 has affected return on investments made in debt instruments and exchange-traded funds (ETFs). The EPFO has 85 percent of its investments in debt and 15 percent in ETFs.

In April and May, it also cleared 3.61 million claims worth Rs 11,540 crore of which nearly half – 1.55 million claims worth Rs 4,580 crore were related to the Pradhan Mantri Garib Kalyan Yojana (PMGKY).