Finance Ministry may approve PF rate of 9.5%

A move by the Labour Ministry to give salaried workers a higher rate of interest on Provident Fund deposits might be approved by the Finance Ministry soon. Till now, there has been no consensus on the rate for 2010-11 between the ministries of Finance and Labour.

Speaking on the sidelines of a Central Board of Trustees (CBT) meeting, Mr Mallikarjun Kharge, Minister for Labour & Employment, told reporters that the Finance Ministry is expected to give a nod to Employees' Provident Fund Organisation's proposal to offer an interest rate of 9.5 per cent on PF deposits for 2010-11.

“The Finance Ministry had sought some clarifications. Those have been sent,” said Mr Kharge.

The Finance Ministry's disagreement with the proposal is based on a CAG report that said that EPFO had no surplus to meet payments entailed by a higher rate of interest. The EPFO had replied that it was not asking for Government funds and it would be generated by its own surplus.

Since there is no Government money involved and the Organisation has certified that there would be no over-withdrawal from the Interest Suspense Account ISA, the CBT has stood by its decision of recommending 9.5 per cent interest, said Mr Kharge.

“The Finance Ministry, in its last communication, discarded the idea of a 9.5 per cent interest rate, but we have decided to stick to it,” said an EPFO official.

If the standoff between the two ministries on the issue does not get resolved, they may approach the Prime Minister informally, according to the official.

Meanwhile, EPFO has decided not to invest in the stock market in the absence of any security for its capital from the Government.

“We did not get any guarantee on returns or safety from the Finance Ministry on such investment in the stock market. Our decision remains unchanged and we don't want to invest in equities. Since no new decision has been taken, the status remains the same,” said Mr Kharge.

EPFO has 4.71 crore subscribers and a corpus of around Rs 3 lakh crore.

Will invest in LIC Housing

At the CBT meeting, EPFO also revoked its decision to not invest in LIC Housing Finance Ltd, a subsidiary of Life Insurance Corporation and had been allegedly involved in the bribe-for-loan scam last year. The CBI had arrested the Chief Executive Officer and top officials of LIC Housing Finance on allegations of taking bribes for clearing loans for big corporates. The CBT had suspended funding in the subsidiary after it got involved in the scam.

The CBT Board decided to resume investments in LIC Housing Finance as LIC is a large public sector unit and it has been confirmed by the Finance Ministry and the credit rating agencies that its finances are sound, said an official.

“Both Crisil and CARE have certified the company and so we have taken this decision,” he said.

Stocks of LIC HF Ltd jumped 6.81 per cent at Rs 190.60 on BSE today.