Financial Daily from THE HINDU group of publications
Monday, Jun 10, 2002
Industry & Economy - Economic Offences
Columns - On the move
SPF: On a recovery wave
N. K. Kurup
"WISE men never sit and wail about their loss, but cheerily seek how to redress their harms." It is heartening to note that the trustees of the Seamen's Provident Fund (SPF) that suffered a huge loss in the recent securities scam, are sincerely following this old saying. Last week, they came out with three alternative proposals to recoup the Rs 93-crore loss, all of them, of course, involving government financial commitments.
The first, a request for issuing 10-year Government of India bonds bearing eight per cent interest in favour of SPF. According to the calculation, interest earnings from such bonds for an amount of Rs 288 crore, can make up the SPF losses in ten years. This is similar to the bail-out strategy the Government adopted in the case of Unit Trust of India and some public sector banks, such as Allahabad Bank and Uco Bank.
Second, an interest-free government loan of Rs 243 crore for ten years. This, it is calculated, will enable the Fund pay the seamen interest on their provident fund at the rate of 9.5 per cent per annum and also to recoup the lost amount. Third, a one-time government grant of Rs 93 crore on the condition that if any amount is recovered from the guilty, it would be credited to the government account. Revival
The SPF Board fears that the outflow from the fund would be more than the inflow in the future. This is because a majority of Indian seamen are in the higher age profile and, as a result, settlement rates of their provident fund accounts would also be higher in the coming years. Besides, the present scam would also force seamen to take out their contributions, one way or the other.
Of the 26,400 members of SPF, nearly 10,000 are Indian seamen employed in foreign flag vessels. Under the SPF Act, it is not mandatory for those employed on the foreign flag vessels to participate in the PF scheme. Recently, there were reports that foreign ship-owners may withdraw from the scheme. Currently, they are making contributions to SPF as per an agreement signed by them with the seamen unions, which will expire by the end of this year. If the Rs 93-crore loss is not compensated, it would reduce the size of SPF corpus and the interest earnings.
The SPF board's proposals, no doubt, reflect its sincere effort to compensate the loss. But are they as simple for the Government to accept?
For instance, consider the third suggestion: An outright grant of Rs 93 crore. It is irrational and insensible asking for such a large amount from the Government to make up the losses caused by a fraud committed by an employee, even before the investigations are over. Such move would only encourage others in "vulnerable positions" to commit similar frauds.
The first proposal comparing the UTI and public sector banks with SPF is not exactly correct. UTI's losses were mainly due to wrong business decisions. Or call it mismanagement of funds. But in the case of SFP, it is a fraud. The issue of bonds could set an `improper' trend.
The second suggestion, an interest-free government loan, appears to be more practical. The funds can be deposited with the RBI's Special Deposit Scheme.
Simultaneously, a scheme may be worked out to create a "loss recovery" fund with voluntary contributions from ship-owners and seafarers (including officers). The amount could be later transferred to SPF. Contribution can also be made from the Seamen's Welfare fund. This may help create goodwill while seeking interest subsidy from the Government.
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