The Employees Provident Fund Organisation has sought the permission of the Reserve Bank of India and the finance ministry to enter the government repo market. It is also likely to pick up debt papers from private banks.
The organisation, which had a corpus Rs 140,000 crore (Rs 1,400 billion) on March 31, 2003, has been very conservative in its investments, so this move is being perceived as a radical one.
The EPFO has sought an overhaul of its investment avenues to ensure that it is able to meet the gap between its income and the committed 9 per cent rate of interest that it is paying its depositors.
The EPFO said there had been occasions in the past one year, when there had been large cash inflows that had to be left undeployed due to the non-availability of suitable investment avenues.
On January 1, 2004, it received an interest of Rs 4,407.08 crore (Rs 44.07 billion) from the Special Deposit Scheme, but most of it was kept idle for the next twenty days.
Thus, the EPFO has informed the Central Board of Trustees that the average idle balance "shot up to Rs 855.51 crore (Rs 8.55 billion) during the period".
The origination said since the RBI had permitted the Life Insurance Corporation of India and other insurance companies to lend in the repo market to help them avoid idling of funds, the EPFO should also be allowed to use the same avenue to deploy their funds.
The changes in investment patterns are part of the measures recommended by the fund manager of the EPFO, the State Bank of India. Accordingly, it is expected that the long moribund route of deploying 10 per cent of the fresh accretions to the EPFO will be relaxed now.
While investment in corporate sector debentures is still not allowed, the EPFO has decided to put its money in bonds and debentures and term deposits of private sector banks like ICICI Bank and HDFC Bank.
The total exposure in any such bank by the EPFO will not at any point exceed 10 per cent of the banks' net worth. Besides, the ceiling for investment in a particular bond will be 5 per cent of the total funds to be raised from the market under such issue.
Further, the net worth of the bank must be above Rs 100 crore (Rs 1 billion) and the issue of the papers must have the approval of the RBI or the Securities and Exchange Board of India.
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