Lagatar24 Desk
New Delhi, Oct.29: The Finance Ministry approved an 8.5 percent rate of interest on provident funds for 2020-21, allowing the Employees’ Provident Fund Organisation (EPFO) to credit interest to recipients’ accounts ahead of Diwali.
The labour ministry wants to disclose the rate as soon as possible after receiving approval from the ministry on Friday, according to a senior government official. The EPFO has around 6.7 crore active subscribers and 6.9 lakh contributing establishments.
The interest rate was reportedly set based on a profit of Rs 70,300 crore from the sale of debt and equity assets, leaving the EPFO with a surplus of roughly Rs 300 crore. The retirement fund body’s Central Board of Trustees (CBT) proposed in March that the interest rate for the financial year 2020-21 be kept at 8.5 percent. The advice was given while keeping the returns on equity investments in mind.
For FY2021, the EPFO chose to liquidate equity investments, and the suggested interest rate was based on a combination of interest income from debt investments and income realised from equity investments. The interest rate ratification process was accelerated to assist people ahead of the festival season.
Despite significant withdrawals as a result of Covid’s impact on people’s financial resources, the EPFO kept the interest rate on PF deposits at the same level as in 2019-20 for 2020-21. Following the Covid-19 pandemic, the retirement fund body faced large withdrawals and lesser contributions. The EPFO had settled 56.79 lakh claims worth Rs 14,310.21 crore under the advance facility as of December 31.
Over the years, the finance ministry has questioned EPFO’s retention of a relatively high rate, urging it to lower it to below 8% in accordance with the overall interest rate scenario. Among alternative savings tools, the EPFO rate remains the highest. Despite a drop in general market rates, small savings rates have remained steady in recent quarters, ranging from 4% to 7.6%.
The Finance Ministry has questioned the EPFO’s exposure to IL&FS and other risky firms, as well as the 2019-20 interest rate and the 2018-19 interest rate of 8.65 percent. The CBT suggested splitting the interest payment for the financial year 2019-20 into two halves in September last year, citing “extraordinary circumstances arising out of Covid-19.” However, beginning in January 2021, the EPFO began crediting interest in one go.
