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New Delhi: The Union Ministry of Labor and Employment has assured that the savings of subscribers in the Employees’ Provident Fund (EPF) scheme will be protected, irrespective of the return on investment made by the organization running the scheme (EPFO) in corporate bonds of private companies. Without. ,
This is after Anil Ambani-owned Reliance Capital defaulted on its interest payment to the EPFO.
According to a senior official who spoke to ThePrint on condition of anonymity, the government always has a buffer or surplus from the EPFO’s return on investment, which ensures that the savings of the employees are protected.
“At least 80 per cent of EPFO’s corpus is invested in safe assets like public sector bonds and government securities, which do not default. Twenty per cent of the investment should be in corporate bonds, including those issued by public sector undertakings, on which we earn a lot of interest, so there is enough buffer to cover the liabilities,” the official said.
Here the case is of Reliance Capital. Last week Minister of State for Finance Dr. Bhagwat Karadi said The Rajya Sabha firm, in whose non-convertible debentures (NCDs) the EPFO had invested Rs 2,500 crore, has defaulted on interest payment of Rs 536.64 crore till November 30, 2021.
Karad, however, said that there was no default in the principal payment of these NCDs.
“The Ministry of Labor and Employment has further informed that since the maturity date of these investments has not yet become due, there has been no default on the principal amount,” Karad said.
The Union Labor Ministry has fixed 8.5 per cent interest for the year 2020-21 for subscribers of the EPF scheme, resulting in payment of around Rs 70,000 crore as interest, leaving a surplus of Rs 1,000 crore. According to government sources, this was mentioned in the meeting of the Central Board of Trustees of EPFO in November 2021.
Read also: Finance Ministry approves 8.5% interest rate on EPF for FY20
default in interest payment
Non-convertible debentures are debt instruments that offer higher interest rates. Companies typically use these instruments to raise money to accumulate the long-term value of their assets.
For the first time, Reliance Capital defaulted on these interest payments in October 2019. Since then, various regulatory actions have been taken against the company.
Last month, the Reserve Bank of India superseded the board of Reliance Capital and appointed former Bank of Maharashtra executive director Nageswara Rao Y as the administrator of Reliance Capital.
The RBI has also filed an application in the Mumbai bench of the National Company Law Tribunal (NCLT) to initiate insolvency proceedings against the company. The process will take 330 days as per government norms.
No investment in private sector bonds
As per the investment pattern mandated by the government, the EPFO is required to invest a minimum of 20 per cent of its incremental inflows in corporate bonds issued by public sector undertakings.
However, in August last year, following defaults in repayment of Infrastructure Leasing and Financial Services Ltd (IL&FS) and Reliance Capital, the board of the retirement fund body decided to stop any further investment in bonds issued by private sector companies. decided.
The board had also decided that the EPFO would invest in bonds of only those public sector units that meet certain rating criteria.
(Edited by Saikat Niyogi)
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