EPFO likely to up investment cap for public sector bonds

EPFO likely to up investment cap for public sector bonds

New Delhi: The retirement fund manager Employees’ Provident Fund Organisation (EPFO) is likely to hike the cap on investment in bonds of highest rated public sector undertakings, banks and financial institutions on the lines of the insurance sector to earn better returns.

According to sources, proposal to enhance the investment limit to 60% of the networth of the public sector banks and financial institutions or to up to 10% of capital employed will be taken up at the EPFO’s advisory body Finance and Investment Committee (FIC) meeting on 26 February.

At present, EPFO can only invest up to 40% of the networth of PSUs or state-run financial institution and up to 45% of that of the public sector banks.

The proposal will provide more investment opportunities to the Employees’ Provident Fund Organisation (EPFO), which is flush with funds with an incremental deposits of about Rs25,000 crore every year, but its capability to subscribe to high-rated bonds is limited by the current curbs on investments.

“EPFO is at present facing an unusual situation of increasing funds but decreasing issuers to subscribe to. This may have serious repercussions on our ability to earn the best possible rates on our investments," says the proposal.

The total corpus of EPFO currently stands at around Rs2.57 lakh crore. It has a subscribers base of over 4.71 crore.

The proposal is required as the EPFO has either exhausted or on the verge of exhausting the current investment limits in major players in the bond markets like IDBI Bank, Power Finance Corporation and Rural Electrification Corporation.

After the FIC firms up its views, the recommendations would be placed before the EPFO’s apex body-Central Board of Trustees (CBT).

Generally, FIC recommendations find favour with the Trustees, which is headed by labour minister M. Mallikarjun Kharge.

According to the proposal for the forthcoming meeting of FIC, the enhanced limit should be restricted to issuers with the highest credit rating of AAA.

The proposal is on the lines of the cap mandated by insurance regulator IRDA.

The proposal said for the remaining institutions, the current limit of 40-45% of networth should be retained.

For the bonds issued by private sector companies, the proposal calls for retaining the current limit of 25% of networth for non-banking companies and up to 30% for banks.