EPFO recommends 8.15% interest rate on employees’ provident fund for 2022-23

Announcing the interest rate for FY23, Labour and Employment Minister Bhupender Yadav, who heads the CBT, said investments are done conservatively and EPFO complies with the guidelines laid down by the Finance Ministry. The marginal hike in interest rate for FY23 comes amid a rising interest rate cycle, with officials saying that the rate has been increased despite tight financial conditions and global headwinds.

According to CBT members, retaining the interest rate at 8.1 per cent, the same level as last year, would have resulted in a surplus of around Rs 1,100-1,200 crore, while increasing it to 8.2 per cent would have resulted in break-even level and increasing it beyond that would have resulted in a deficit. “So, it was decided to fix it at 8.15 per cent to cover the risk elements, for safety of the investments and future inflows,” KE Raghunathan, a CBT member, representing employers, said.

In its statement, the ministry said the board’s recommendation involves distribution of more than Rs 90,000 crore in the members’ account on a total principal amount of Rs 11 lakh crore. The amount distributed in 2021-22 was Rs 77,424.84 crore on a principal of Rs 9.56 lakh crore. “The total income recommended for distribution is the highest till date. The growth in income and the principal amount is respectively more than 16 per cent and 15 per cent as compared to last financial year 2021-22,” it said.

The decline in the Fund’s amount to a deficit in the previous financial year 2021-22 happened primarily as several exempted establishments approached the EPFO for surrendering their exempt status. Total 83 cases were received for surrendering of exempt status, out of which five cases were placed before the CBT for its consideration. “The exempted establishments, some of which were under the aegis of state governments of West Bengal, Tamil Nadu, Goa and Government of India requested for surrendering their exempt status. Due to this, the principal with EPFO increased but also a higher interest payout had to be made to those establishments. Besides this, there may be a difference between the projection and actual realisation from dividend and sale of certain investment,” a CBT member said.

The retirement fund body also discussed its exposure to downgraded or risky securities such as Reliance Capital, YES Bank, DHFL and IL&FS. The Fund’s exposure to such risky investments is estimated to be around Rs 4,500 crore. “How much we will get back is yet to be assessed. The process is on. For some of those risky investments, we might even get back the entire amounts,” the CBT member said.

Over the years, EPFO has been able to distribute higher income to its members, through various economic cycles with minimal credit risk, it stated, adding that considering the credit profile of the EPFO investment, the interest rate is higher than other comparable investment avenues available for subscribers. “EPFO has consistently followed a prudent and balanced approach towards investment, putting the highest emphasis on safety and preservation of principal with an approach of caution and growth,” it said.

The CBT, headed by Union Labour Minister Bhupender Yadav and having representatives from employers and employees, recommends the interest rate which is then ratified by the Finance Ministry. Subsequently, it gets notified by the Labour Ministry and credited into accounts of the subscribers by the EPFO.

Over the years, the finance ministry has questioned the high rate retained by EPFO and has been nudging it to reduce it to a sub-8 per cent level in line with the overall interest rate scenario. EPFO rate continues to be the highest among other savings instruments, with small savings rates ranging from 4.0 per cent to 7.6 per cent.