Provident funds to pay 9.5 per cent interest in 2010-11

The Central Board of Trustees of the Employees Provident Fund Organisations (EPFO) today announced a full one percentage point increase in interest rate on PF deposits to 9.5 per cent for 2010-.

The one percentage point hike in interest rate from the existing 8.5 per cent, which comes as a windfall to over 47 million workers in the organised sector, will result in a deficit of about Rs1,600 crore.

This is the first that the interest rate on provident fund deposits has been increased to 9.5 per cent since 2004-05.

The rate hike will result in an additional Rs1,731 crore charge on the provident fund organisations. This would, however, be met from a Rs2,000-crore suspense account of the EPFO, labour minister Mallikarjun Kharge said after a meeting of the central board of trustees of PF organisations.

The recommendation of the EPFO trustees will now be forwarded to the finance ministry. The finance ministry, which notifies the provident fund interest rate, usually accepts the recommendation of the board of trustees of EPFO.

The rate hike is expected to put pressure on companies with independent PF trusts, as they are required to match the PF rate declared by the government.

While the Rs2,000 crore surplus with the EPFO would suffice to pay a 9.5 per cent interest for the current financial year, the board may find it difficult to match this in future unless it opts to tap other sources of investment such as equity.