The Employees’ Provident Fund Organization (EPFO) has slashed interest rate on provident fund deposits down to 8.1% for 2021-22 from 8.5% credited for 2019-20 & 2020-21. The 8.1% interest rate is the lowest interest rate the EPFO has fixed in 40 years. The lowest interest rate previously was 8% for 1977-78, which is 45 years ago and the interest rate had always been 8.25% or more since then till 2021-22. The decision was made during the Central Board of Trustees’ (CBT) meeting held in Guwahati on Saturday.
The interest rate is decided based upon the EPFO’s estimated income for the year which is said to be ₹76,768 crores, this will leave the EPFO with a surplus of ₹450 crores and the drop in interest rates is said to affect the earning for more than 6 crore EPFO subscribers. AK Padmanabhan, a member of the CBT of EPFO, said “The falling interest rate is a big disappointment to millions of EPFO subscribers. Total economy is in distress and the fall in interest rate is a reflection of that.” Had EPFO maintained the existing interest rate of 8.5%, the retirement fund body would be left with a deficit of ₹3,500 crores.
“Keeping in mind the global situation and the equity market, maintaining a balance of investment with social security is our priority. We can’t opt for high-risk instruments,” Labour Minister Bhupender Yadav said “We are not market makers but in the market for stability and that’s why the board has recommended the interest rate of 8.1% which is as per our estimate,” the minister added. The decline in interest rate has been attributed to the volatility of the stock market and the Russia-Ukraine crisis which has affected earnings of the EPFO’s investments.
K.E. Raghunathan, a member of the CBT said “This year the earning has been about Rs 76,000 crore out of which Rs 5,800 crore is from ETFs which we diluted before the war. This has helped us get some decent return. While other funds have given 6.8%-7%, the interest rate of 8.1% is decent and should be appreciated.” The EPFO’s corpus fund has increased from ₹8.29 lakh crores in 2020-21 to ₹9.4 lakh crores in 2021-22. The Ministry of Finance will now evaluate and vet the interest rate announced by the CBT of EPFO before it becomes notified.
The final interest will be credited into the subscribers’ accounts after the interest rate has been notified which generally happens around Diwali. The EPFO will begin crediting the interest amount around Diwali and will go on till January of next year for every active subscriber’s account to be credited with the interest amount. The finance ministry has been pushing the labour ministry to lower the interest rate on provident deposits to make them on par with other small saving schemes.