SBI delivers lower EPF returns than pvt competitors

Over a year after the Employees Provident Fund Organisation (EPFO) broke the State Bank of Indias monopoly in managing its Rs 2.7 lakh crore...

Over a year after the Employees Provident Fund Organisation (EPFO) broke the State Bank of Indias monopoly in managing its Rs 2.7 lakh crore corpus,the countrys largest banker is feeling the heat from its private sector competitors. Latest statistics reveal that the SBI has delivered lower returns than the three private asset managers HSBC,ICICI Prudential and Reliance Capital,appointed by the EPFO in September 2008.

Although all the four portfolio managers have delivered as much or more than the current 8.5 per cent EPF rate between September 17,2008 and September 30,2009,enabling the EPFO to make this years interest payment without dipping into its reserves for the first time since 2002-03,a performance evaluation report for the whole year showed that the SBI is lagging behind the others. While the SBI delivered the highest returns in the first six months after the EPFO inducted the private players ie from September 2008 to February 2009 its performance had slipped thereafter,the report prepared by Crisil Fund Services revealed. For the full year,HSBC delivered the best yields,followed by ICICI-Prudential,Reliance and SBI.

The SBIs performance has been on the decline in the first two quarters of 2009-10,affecting its ranking. In fact,between April-June 2009,SBI was the only fund manager to have under-performed the benchmark yield. This is when it yielded the top spot to ICICI-Prudential.

The SBIs slip in performance has set alarm bells ringing at the EPFO,which shot off a missive in early September to the bank to take immediate steps to fix the slide.

Following a directive by the Finance and Investment Committee (FIC) of the EPFO board,the organisations financial advisor Abhay Singh wrote: The Committee noted with concern that SBI has been the only portfolio manager to have under-performed the benchmark yield of 7.28% for the first quarter of this fiscal. Moreover,on cumulative basis (for the period from September 17,2008 to June 30,2009),it (SBI) has slipped to second position after ICICI prudential AMC,if only yield parameter is concerned,and has slipped to the fourth position on overall ranking if Asset quality and maturity profile are also considered along with Returns, he said in the letter,a copy of which is available with The Indian Express.

FIC members have also expressed concerns about the SBIs below-par performance and had asked that their dissatisfaction be communicated in writing to the bank,sources said. The maturity profile of the PF corpus invested by SBI is a source of worry too with maximum proportion invested in securities with maturity of less than a year,while the PF requires longer-tenure securities. EPFOs relations with the SBI have been under strain even before the other fund managers were roped in. A damning audit report about SBI keeping EPFO funds idling in its coffers in earlier years had helped convince EPFO board members about the need for change. However,SBI still remains the EPFOs sole banker,meaning all PF contributions have to be paid into SBI branches. Citing the changed economics of its relationship with EPFO,the bank has been demanding that its collection fees be increased from Rs 2 per 1,000 rupees of contributions to Rs 5.

In fact,in November last year,SBI threatened to stop accepting PF deposits with immediate effect and only desisted from the move after the Banking division of the finance ministry intervened. While the EPFO had invited other banks to break SBIs banking monopoly last year,the plan has been slow-tracked to avoid rocking the boat too much.