EPFO decides to break SBI monopoly over its funds

Even as the Rs 240,000-crore Employees’ Provident Fund Organisation (EPFO) is creating a short-list of professional fund managers to replace its sole investment manager--- State Bank of India---work has also begun on abolishing SBI’s 56-year monopoly over EPFO’s banking business, thanks to growing differences between the two financial bigwigs in the past couple of years.
In a recent meeting, the EPF board’s finance & investment committee (FIC) has decided to approach 10 top banks on the basis of ‘their branch spread’ and ask them what facilities they can offer to EPFO, considering the huge quantum of funds involved. Just like the move towards multiple fund managers last year was triggered by the realisation that sub-optimal investments by SBI may be responsible for the dipping returns on its portfolio, the move to replace SBI as its banker comes after the bank failed to come up with a ‘satisfactory’ treatment for EPFO’s funds that remain idle in the bank’s coffers.
Employers contribute their workers’ monthly PF contributions to local SBI branches, which then submit challans to the local PF office and transfer the funds to EPFO’s investment account, usually with a time lag. “On a day-to-day basis, amounts as high as Rs 150 crore could be idling in SBI vaults till they reach EPFO’s accounts. For over two years now, we have been asking SBI to give some kind of returns on these funds, as they are being deployed in the bank’s operations,” a FIC member told FE.
While SBI had cited RBI guidelines for its inability to share returns on idle funds with EPFO, it had offered to pay interest equivalent to what is paid on savings accounts. But it took a while for EPFO to realise this didn’t add up to much. Savings accounts are credited interest on the basis of the minimum balance in the latter half of a month. So, if idle funds are transferred to EPFO’s investment accounts during the time, EPFO would get zero interest.
To counter this, EPFO asked SBI to pay interest on daily running balances rather than on a monthly basis. However, SBI said this can’t be done as per the savings account rules. At the last meeting with EPFO’s financial advisor to resolve the impasse, SBI officials proposed a combination of liquid mutual funds and overdraft facility
Attributing SBI’s inflexible attitude to its monopoly status, the FIC chairman said that ‘bringing competition is... the only remedy.’ As per the FIC decision, the EPFO will now approach the top ten banks....

Source: Financial Express