Suspecting defaults by some state PSUs on their bonds, the EPFO may tighten investment norms of exempted provident funds that manage over Rs 1.6 lakh crore of long-term savings and bar them from investing in debt papers that are not guaranteed by the state governments.
EPFO suspects some of the exempted funds may have invested about Rs 10,000-12,000 crore in state PSU bonds that are not guaranteed by the respective governments. Some of the PSUs may have defaulted in either interest or principal payments, an official told FE.
"We are planning to come up with a new investment guideline for exempted PFs," the senior official told FE. The PFs may be debarred from investing in PSU bonds that are not guaranteed by the respective states, the official added.
Many big corporates and PSUs have their own PFs and are classified as "exempted" funds, which are allowed to follow a different investment pattern as against the stringent norms prescribed for unexempted PFs that come under EPFO.
Recently, the labour ministry notified a new investment pattern for unexempted PFs that stipulates that a maximum 55% of the funds could be invested in government securities, up to 55% in corporate bonds and bank fixed deposits and 5% in money market mutual funds.
Exempted funds still follow the investment pattern notified by finance ministry in 2008 that allows them to invest 55% in government bonds, 40% in corporate bonds and bank FDs, 5% in money market mutual funds and up to 15% in equities on which derivatives are available in BSE or NSE and/or equity linked schemes of mutual funds regulated by the SEBI.
The EPFO has already increased its monitoring of exempted PFs through an online software system. In a recent letter to the labour secretary Gauri Kumar, EPFO's central provident fund commissioner KK Jalan said that 75% of the data regarding exempted establishments will be entered into the system by APril 30 and the software will become fully operational from June 30.
In 2012-13, employees contributed Rs 60,257 crore towards PFs of which Rs 45,798 crore was mopped up by unexempted funds and the remaining Rs 14,458 crore by PFs.