EPFO likely to hike investment cap for PSU bonds

A proposal to enhance the investment limit to 60% of the net-worth of public sector banks and financial institutions or up to 10% of capital employed will be taken up at the EPFO's advisory body meeting on 26th February

Retirement fund managing entity Employees' Provident Fund Organisation (EPFO) is likely to hike the cap on investment in bonds of highest-rated public sector undertakings (PSUs), banks and financial institutions on the lines of the insurance sector to earn better returns, reports PTI.

A proposal to enhance the investment limit to 60% of the net-worth of public sector banks and financial institutions or up to 10% of capital employed will be taken up at the EPFO's advisory body Finance and Investment Committee (FIC) meeting on 26th February, sources said.

At present, EPFO can only invest up to 40% of the net-worth of PSUs or state-run financial institutions and up to 45% of that of public-sector banks.

The proposal will provide more investment opportunities to the EPFO, which is flush with funds with incremental deposits of about Rs25,000 crore every year, but its capability to subscribe to high-rated bonds is limited by the current curbs on investments.

"EPFO is at present facing an unusual situation of increasing funds but decreasing issuers to subscribe to. This may have serious repercussions on our ability to earn the best possible rates on our investments," says the proposal.

The total corpus of EPFO currently stands at around Rs2.57 lakh crore. It has a subscriber base of over 4.71 crore.

The proposal is required as the EPFO has either exhausted or is on the verge of exhausting the current investment limits in major players in the bond markets like IDBI Bank, Power Finance Corporation and Rural Electrification Corporation.

After the FIC firms up its views, the recommendations would be placed before the EPFO's apex body—the Central Board of Trustees (CBT).

Generally, FIC recommendations find favour with the Trustees, headed by labour minister M Mallikarjun Kharge.

According to the proposal for the forthcoming meeting of FIC, the enhanced limit should be restricted to issuers with the highest credit rating of ‘AAA’. The proposal is on the lines of the cap mandated by insurance regulator IRDA.

The proposal said for the remaining institutions, the current limit of 40%-45% of net-worth should be retained. For the bonds issued by private sector companies, the proposal calls for retaining the current limit of 25% of net-worth for non-banking companies and up to 30% for banks.
 

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