The Employees Provident Fund Organisation will be able to sustain only 8 per cent interest rate for the next financial year, and not 9.5 per cent, according to officials.
The Central Board of Trustees will be meeting on March 20 to decide the interest rate for the current and the next financial year.
If the CBT chooses to maintain a 9.5 per cent interest rate for 2005-06, it will be left with a deficit of around Rs 1,200 crore (Rs 12 billion) in addition to the Rs 927-crore (Rs 9.27 billion) shortfall it faces during the current financial year.
The CBT, headed by Labour Minister K Chandrashekhar Rao, is likely to build pressure on the government when it meets next for filling in the over-Rs 900 crore (Rs 9 billion) gap created by the 9.5 per cent interest rate for three years starting 2002-03.
The finance ministry has already ruled out any support to the EPFO to help it meet the 9.5 per cent interest liability.
The finance and investment committee of EPFO, which met on Tuesday, decided not to exercise the option of investing in equity though private provident funds were in January allowed to invest up to 5 per cent of their kitty in equity of companies that have an investment-grade debt rating from two credit rating agencies.
The CBT is also likely to request the government to allow EPFO to invest in the National Saving Certificate and Post Office Term Deposit Receipt.
The CBT had earlier proposed an amendment in the investment pattern of EPFO to include the two but it was not accepted by the ministry of finance.
The CBT will also ask its portfolio manager State Bank of India to put the portfolio into tradable and non-tradable categories in concurrence with the financial adviser and chief accounts officer of the EPFO, as required in the revised investment pattern notified by the finance ministry in January.
This was required since the government had permitted trading in a small portion of the total portfolio, allowing provident funds to sell securities and book profits, and switch securities and churn profits in case of central securities and gilt funds.
Tradable portfolios of government securities are required to be marked to market, and gilt funds are to be valued at the net asset value prevailing at the close of a financial year.
The CBT request for allowing trading in bonds and debentures was, however, not accepted.
The trustees had in 2001 decided that the portfolio manager should be granted the switching option to exit from an existing investment before maturity when there was capital gain involved in the transaction. This decision was not executed pending government permission.
The EPFO is also of the view of that despite the government allowing investment in term deposits for up to three years' maturity period, these should be used only for short-term parking of funds.
