Inoperative EPF accounts to earn interest

Inoperative EPF accounts to earn interest: The government has scrapped a decision taken by the previous United Progressive Alliance government to suspend interest credits on inoperative Employees’ Provident Fund (EPF) accounts, in the absence

March 30, 2016

Interest on inoperative EPF accounts

This refers to the report “Inoperative EPF accounts to earn interest” (The Hindu, March 30, 2016). While this is a welcome move, the report gives an impression that initially the decision is to pay interest on balances in inoperative EPF accounts from 2016-17, while payment of interest was discontinued from 2011. First, GOI need to infuse professionalism in book-keeping and funds management by organisations like EPFO to ensure that basic tenets of best practices are followed by fund managers handling the money entrusted to them by small savers. In this regard organisations like EPFO, LIC and banks have a trusteeship responsibility.
The funds collected by these organisations are not ‘black money’ kept in secret accounts by rich businessmen. The accruals are from wages earned by workers and need to be treated with the respect such savings command. If 11 crore accounts out of 15 crore on the books of EPFO are inoperative and have an aggregate balances amounting to Rs 32,000 crore, it is a serious issue, much beyond withholding
payment of interest, needing a deeper look. Add to this thousands of crores comfortably classified as ‘unclaimed’ remaining unproductive on the books of organisations like LIC and banks.
A related issue is the government’s tendency to treat savings with EPFO and other statutory bodies as a captive source for funding G-Secs. It is time these organisations are given a higher level of autonomy in professionally managing their funds. GOI, on their part, need to make G-Secs a financial product acceptable in the retail market. Gradually, the dependence on captive catchment areas like SLR investment by banks and mandated investment by statutory bodies should be brought down, allowing them more flexibility in professional management of funds.


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