RBI outlines steps to improve management of EPFO corpus

Suggests differentiated investment strategies, market-linked accounting

- SHIVA RAJORA

The Reserve Bank of India (RBI) has advised the Centre to consider a range of measures to improve the investment management and accounting practices of the country's largest retirement fund, the Employees' Provident Fund Organisation (EPFO), at a time when it is announcing significantly higher annual returns for its members than prevailing yields on government bonds, where most of its funds are parked.

The RBI advisory follows a labour ministry request earlier this year seeking the central bank's expertise to identify gaps in EPFO's investment strategy and fund management practices, including accounting, risk management, and internal governance. The EPFO is the custodian of retirement savings worth more than ₹25 trillion, belonging to around 300 million formal-sector workers.

"EPFO manages as well as regulates over ₹25 trillion of accumulated funds in provident fund, pension and insurance, but lacks an independent regulatory mechanism, leading to potential conflicts of interest. The investment division and investment committee of the Central Board of Trustees (CBT) could do better with enhanced expertise in areas such as accounting, treasury/portfolio management and actuarial assesments," the ministry told the RBI in a meeting earlier this year, learnt Business Standard.

A person familiar with the matter said: "Every year, there is pressure to maintain and even raise the returns for the large subscriber base, even as bond yields have fallen far below that level recently. The gap has been met through the realisation of capital gains on equity investments."