EPFO To Withhold Investments In Bonds Of Private Companies
EPFO’s Central Board of Trustees has approved the decision to withhold any further investments in private sector company bonds.
The Employees Provident Fund Organisation decided not to invest in debt of private companies amid concerns about the quality of corporate paper.
The Central Board of Trustees approved the decision to withhold any further investments in private sector company bonds, according to a statement issued after its meeting in Hyderabad. The CBT, which has representatives from trade unions, employers and central and state governments, also made it compulsory that one of the two required ratings considered for such investments should be from Crisil, Care Ratings, ICRA or India Ratings. EPFO invests in only AA or higher-rated paper.
A series of defaults by IL&FS group in September last year triggered a liquidity crunch and sparked fears of a contagion in credit markets. The recent defaults Anil Ambani Group subsidiaries and Dewan Housing Finance Ltd. has only heightened the risk around investments in private sector bonds.
The EPFO’s board of trustees approved early redemption option in Dewan Housing bonds as recommended by the financial investment and audit committee. It also decided to participate in the debenture holders meet of IL&FS, whenever it is held. EPFO had an exposure of Rs 574.7 crore to IL&FS paper, according the Ministry of Labour’s disclosure to Parliament.
The EPFO, the world’s 21st largest pension fund, managed Rs 13.3 lakh crore worth of money for 4.5 crore participating employees as of March 2018. The latest numbers for investments in private sector debt are not available. As on March 31, 2017, according to its disclosures, EPFO had invested Rs 42,855.3 crore in private company debt, up from Rs 35,394.9 crore in the previous fiscal.
The regulations mandate it to invest at least 35 percent and a maximum of up to 45 percent of the portfolio in the listed debt securities of bodies corporate, including banks and public financial institutions which have a minimum residual maturity period of three years from the date of the investments.
Benefit For Pensioners
Separately, the board approved a proposal suggesting an amendment in Employee Pension Scheme 1995 for restoring the amount paid in lump sum and commuted from pension calculation at the time of retirement. After 15 years of retirement, the commuted amount will be added back to the corpus for calculation of pension, according to the statement. The move will benefit approximately 6.3 lakh pensioners, it said. EPFO had 63.28 lakh pensioners as of October last year.