EPFO suspends investment in LIC Housing Finance

EPFO suspends investment in LIC Housing Finance

New Delhi: The labour ministry-controlled Employees’ Provident Fund Organization (EPFO) on Thursday decided not to invest further in LIC Housing Finance Ltd (LICHF), some of whose officials are under investigation on suspicion of having taken bribes to disburse loans.

The decision by the retirement fund manager to suspend further exposure to the company was finalized at a meeting of the Central Board of Trustees (CBT) headed by labour minister Mallikarjun Kharge, prompting a 7.3% drop in the stock on the Bombay Stock Exchange. CBT, comprising government, employee federations and trade union representatives, is the apex decision-making body of EPFO.

“We have suspended further investments in LIC Housing Finance. Safety of funds is our prime concern. We are doing so because CBI (Central Bureau of Investigation) is investigating the case," Kharge said after a CBT meeting in New Delhi.

“Till the investigation is over, LICHF is not in our reckoning. Safety and security of common man’s money is very important for us," said the minister, underlining that his ministry will deliberate on what needs to be done with the funds already invested in the company. CBI last month arrested LICHF’s chief executive officer Ramachandran Nair and seven other senior bankers for allegedly conniving with real estate companies to grant large-scale corporate loans without following mandatory regulations. The Finance Investment Committee (FIC) of the retirement fund manager had met on 26 November and suggested that action be taken related to further investment in LICHF.

The labour ministry said in a document that “LIC Housing Finance Ltd has recently been hit by a CBI probe in which the agency is probing the company for not following the prudent exposure norm and due diligence in extending advances to real estate companies".

EPFO has a total corpus of over Rs3.25 trillion with Rs35,000 crore being added every year.

The body had earlier earmarked Rs846 crore for buying LICHF bonds, of which Rs454 crore has been invested.

LICHF is a subsidiary of Life Insurance Corporation of India (LIC).

Minister of state for labour Harish Rawat said there had been no advice from the finance ministry or pressure from LIC over the step.

“They have no complaints," he said. “As such, no one interferes in our working. We are doing this as a safety measure for our own people."

Rawat said any reconsideration of the decision would take place after the investigation is completed. There are over 47 million active EPF accounts in the country.

CBT also decided that EPFO can now increase investment exposure to bonds of public sector units (PSUs) with AAA ratings to 50% from 40%. It also raised some other exposure limits.

“Increasing the criteria for extending the limits for investment in these establishments will release further deployment of EPF funds in these highly safe corporations," EPFO said in its agenda note.

“This will open additional window for safe investment. Since, the corpus is growing, the limit was extended for safe investment options," said Samirendra Chatterjee, central provident fund commissioner.

“The number of institutions in which EPFO invests is really small. At a time when the corpus is increasing, they have to increase the limit and that's what they have done," said Bhupendra Meel, vice-president, retirement solutions, A.K. Capital Services Ltd.

EPFO will sell bonds of India Infrastructure Finance Co. Ltd (IIFCL), which will provide a capital gain of Rs85 crore that will be reinvested to earn a better rate of interest.

This will be done as a one-time measure.

However, a decision to increase investments in private sector bonds to earn higher interest was deferred as both the ministers and the trustees felt this may not be a safe avenue for EPFO. It already holds bonds of HDFC Ltd and Axis Bank Ltd as part of such investments.

With regard to EPFO money being invested in the stock market, labour secretary Prabhat Chaturvedi said the ministry had written to the finance ministry seeking assurances on capital protection and a guaranteed rate of return.

“We are yet to hear from them,"he said. “We will write to them again."

If the finance ministry is keen on EPFO entering the stock market, it won’t hesitate to give the labour ministry the assurance, Chaturvedi said.

Mint had reported on the terms and condition set by the labour ministry for investing in the stock market on 11 October.

EPFO has retained crediting rating firm Crisil Ltd to monitor the performance of its fund managers.