FinMin raises questions on interest rate of 8.55% proposed by EPFO

FinMin raises questions on interest rate of 8.55% proposed by EPFO

Asks why the retirement fund body has not kept a higher surplus

The finance ministry has raised questions over the Employees’ Provident Fund Organisation’s (EPFO’s) recent decision to declare an interest rate of 8.55 per cent to around 200 million formal sector workers for 2017-18.

In a letter to the labour and employment ministry on March 15, the finance ministry has asked why the EPFO has not kept a higher surplus while declaring the rate at 8.55 per cent. The EPFO has contested the arguments. This is the third consecutive year when the finance ministry has asked the labour ministry to keep a higher surplus while deciding the rate of interest for EPFO subscribers. The finance ministry had pressed for similar arguments in the previous two years to overrule the EPFO’s proposed interest rate for 2015-16 and 2016-17.

The EPFO’s Central Board of Trustees (CBT), chaired by Minister of State for Labour and Employment Santosh Kumar Gangwar, had announced a five-year-low interest rate of 8.55 per cent — which would leave the Fund with a surplus of Rs 5.86 billion — for 2017-18 in a meeting held on February 21.The CBT’s decision on interest rates needs approval from the finance ministry.

“While the finance ministry has not yet ratified the rate of interest, it has questioned the move to dip into the EPFO’s surplus funds of the previous financial year to arrive at a decision to credit interest rate at 8.55 per cent,” said a senior labour ministry official.In its response, the EPFO has told the finance ministry that the practice has been to include the surplus of previous years at the time of deciding the interest rate.

“The EPFO is not required to maintain surplus, according to the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952. We always use the surplus of the previous year while calculating the interest rate,” said the official cited above.The finance ministry also stressed the need to create a reserve fund to ensure the government did not have to fund the losses in case the EPFO “mismanaged” its investments.

The finance ministry cited the example of the Seamen’s Provident Fund Organisation, under the Ministry of Shipping, which had suffered losses of Rs 900 million in 2006-07 and they had to be funded from the government’s coffers.“The EPFO has never submitted any proposal to the Union government to compensate for losses due to its investments. There is no question of approaching the central government and the CBT is solely responsible for the management of the fund,” said another senior EPFO official.

After the EPFO trustees’ meet last month, Gangwar had said, “Looking at the present situation and after much deliberation, we have decided to keep the rate of interest at 8.55 per cent. We are keeping adequate surplus. We hope the finance ministry approves it.” He also said that the EPFO had kept a surplus of Rs 6.9 billion while announcing an interest rate of 8.65 per cent for 2016-17.

During the meeting, the government nominees in the CBT had pushed for keeping the interest rate at 8.5 per cent. However, trade union leaders demanded the interest rate be kept at 8.65 per cent, which would have left the EPFO with a surplus of Rs 480 million.

The Business Standard, New Delhi, 11th April 2018

Household debt up, but India still lags emerging-market economies: RBI

Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...

External spillovers likely to hit India's financial system: RBI report

While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...

Healthy balance sheets augur well for economy: RBI Governor Sanjay Malhotra

Large tariffs by the United States administration and elevated geopolitical risk have increased near-term global financial stability risks, and along with weather events pose downside risks to domestic growth, Reserve Bank of India(RBI) Governor Sanjay Malhotra said in the foreword to the Financial Stability Report released today.Noting that domestic growth momentum is buoyed by strong domestic drivers, sound macroeconomic fundamentals and prudent policies, Malhotra said: “External spillovers and weather-related events could pose downside risks to growth.”On the other hand, he said the outlook for inflation is benign, and there is greater confidence in the durable alignment of inflation with the Reserve Bank’s target.Commenting that the structural shifts reshaping the global economy are making policy intervention challenging, the Governor emphasised the need for central banks and financial sector regulators to remain vigilant, prudent and agile in safeguarding their economies and...

CA Online

Search This Blog