EPFO mulls Contribution Card for subscribers

The proposal to provide Contribution Card to subscribers from 1 April 2012 will be discussed at the meeting of the EPFO’s apex decision making body—the Central Board of Trustees (CBT)—on 23rd December. The card will have details of account and will be updated every month

New Delhi: The retirement fund body Employees Provident Fund Organisation’s (EPFO) about 50 million subscribers may get a ‘Contribution Card’, similar to a bank pass book, which shall have details of account and will be updated every month, from April next year, reports PTI.

At present, it is mandatory for the employer to prepare ‘Contribution Cards’ and update it every month as per the provisions of the Employees’ Provident Fund Scheme, 1952, but such cards are not provided to the subscribers.

The proposal to provide Contribution Card to subscribers from 1 April 2012 will be discussed at the meeting of the EPFO’s apex decision making body—the Central Board of Trustees (CBT)—on 23rd December, a source said.

The card will also have additional information like date of birth, nomination and family details.

EPFO has proposed the CBT, headed by labour minister Mallikarjun Kharge, implementation of this proposal from 1 April 2012.

Earlier, the body had worked out a proposal to provide pass books to certain category of subscribers engaged in unorganised sectors, like building and construction, and brick kiln.

However, EPFO did not implement the scheme fearing that it might face difficulties as labourers change jobs frequently.

EPFO had argued that “it will be difficult for a worker to continue with the pass book when he changes his employment from unorganised to organised sector.” 

In order to overcome the problem, the EPFO wants the trustees to consider a uniform scheme to cover all subscribers 4.72 crore.

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Central Bank of India waives pre-payment charges on housing loans

With this waiver, there will be no pre-payment penalty on all floating rate housing loans of the bank for both new as well as existing borrowers, Central Bank of India chairman and managing director MV Tanksale said

New Delhi: Central Bank of India has decided to waive pre-payment penalties on floating rate housing loans with immediate effect, reports PTI.

“In deference to Reserve Bank of India’s (RBI) suggestions, the bank has decided to waive penalty on pre payment of all floating rate housing loans irrespective of the source of funds of the borrowers,” Central Bank of India said in a statement.

With this waiver, there will be no pre-payment penalty on all floating rate housing loans of the bank for both new as well as existing borrowers, Central Bank of India chairman and managing director MV Tanksale said.

The Mumbai-based state-owned lender had already waived pre-payment penalty on foreclosures where the borrowers were making payments from their own sources.

Last month, State Bank of India and ICICI Bank decided to abolish pre payment penalty.

Housing finance companies has already been barred from charging foreclosure charges.

In October, sector regulator National Housing Bank (NHB) directed all the housing finance companies to desist from imposing a pre-payment penalty on home loan borrowers.

The levy of charge on borrowers for pre-closure of housing loans by housing finance companies has been considered further by the NHB in the light of subsequent developments and it has been decided that hereafter, housing finance companies should not charge a pre-payment levy or a penalty on pre-closure of housing loans, the regulator had said in a notification.

In addition, the NHB has also directed all the housing finance companies to have a uniform and not differential rates of interest for old and new borrowers that have the same credit or risk profile.

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What went wrong with Eurozone countries

 This desire to punish rather than co-operate ensures that the ongoing crisis continues and continues to get worse. Credit remains tight, capital flight from the Eurozone is becoming a real problem and Standard and Poor’s will most likely downgrade several member states

Like most investors I spent most of last week addicted to news about the crisis in the Eurozone. I have assiduously followed the progress of the European summit together with the market reaction. After extensive emersion in every newspaper, magazine, radio program and television show my conclusion is that I have totally wasted a week. Little if anything was accomplished. The reason is quite simple. The Europeans are trying to solve the wrong problem. What they should do is to learn from US history. They didn’t and it will cost them and everyone else.

The most recent agreement is based on the idea that fiscal malfeasance is the origin of the crisis. The thesis goes something like this. Wicked spendthrift governments mostly in Europe’s periphery borrowed a lot of money and blew it on social programs. Now they can’t pay the money back.

To solve this problem the summit decreed penitence. All Eurozone countries would be forced to adopt budgetary discipline through a “fiscal compact”. They would also pass ‘golden rules’ to ensure balanced budgets. If the rules were broken, they would be punished with automatic penalties. They also added a few Euros to the bailout fund, but much of the fund depends on leverage and anyway it wasn’t enough.

This approach was politically acceptable but has some definite problems. The first is that a recession is the wrong time to adopt an austerity package. Austerity creates a vicious circle of economic decline. It reduces domestic demand which raises unemployment and lowers revenues from taxes. This in turn creates larger deficits which lessens confidence in banks and shaky sovereign debt. Besides it isn’t the problem.

Before the crisis Spain, Estonia and Ireland had much better control of their deficits than Germany, Austria or France. They were in fact running a surplus. As a result of their fiscal discipline Estonia, Ireland and Spain has much better control of their public debt than Germany and France. Although Greece and Italy’s public debt is over 100% of their GDP (gross domestic product), Spain’s debt is only slightly more that Germany or Austria’s. Estonia and Finland have surpluses.

The real problem was competitiveness. The Eurozone countries that got into trouble, Estonia, Portugal, Greece, Spain, Ireland and Italy were all running substantial trade deficits. Estonia’s current account deficit was over 10% of GDP. So when the crisis hit in 2008 and private financing of the external imbalance dried up, the countries were in deep trouble.

Estonia is sort of the poster child for the problems of the lack of competitiveness and what to do about it. Estonia is a tiny country and its banking system is owned by foreign firms, mostly from Sweden. During a construction boom, Estonia’s growth was at double digits. After the crash it fell by 14%. The result was pain. Unemployment rocketed to 18%.

One tried and tested way to increase competitiveness is to devalue your currency. The Chinese are especially good at keeping the yuan low in order to insure their competitiveness. But since Estonia like Italy and Greece is a member of the Eurozone, this option was not available. Instead they went through an internal devaluation, which included slashing 9% of GDP from their budget and big cuts in nominal wages. The medicine worked. Estonia now has surpluses and its growth rate at 8.5% is the highest in Europe.

But Estonia had something else that was very important. It had a regulatory framework that encouraged business and was fairly clean. On the Doing Business Index and Corruption Index it scores slightly below Germany. In contrast Italy’s business climate is worse than Mongolia’s and Greece is worse than Yemen. As to corruption both countries are worse than Rwanda.

One thing that the Eurozone could do would be to create a form of joint liability like Eurobonds. These could be adopted with a credible sanction. Any country that spent too much couldn’t use them.

The success of this method was proved over 200 years ago in the United States. In 1790 the recently created country had a massive war debt of $54 million or about $4 trillion in today’s money. The problem was that the debt was very unequal. Some states like New York were deeply in debt, while others like Virginia were almost debt-free. One of the country’s “founding fathers”, Alexander Hamilton had an idea. The new United States federal government would assume all the debt and create joint liability of US bonds.

Mr Hamilton’s plan was an incredible success, but sadly no such solution was agreed to by the European summit. This desire to punish rather than co-operate ensures that the ongoing crisis continues and continues to get worse. Credit remains tight, capital flight from the Eurozone is becoming a real problem and Standard and Poor’s will most likely downgrade several member states. So don’t expect a happy New Year anywhere.  

(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected]).

 

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