Retirement fund body EPFO has decided to reduce the interest rate on EPF deposits of its nearly 40 million subscribers for the current fiscal to 8.65 per cent, from 8.8 per cent provided in 2015-16.
The decision to reduce the interest rate by 0.15 per cent was taken by EPFO's apex decision making body, the Central Board of Trustees (CBT), headed by the labour minister.
The move, which follows a 25 basis point reduction in its key policy rate by the Reserve Bank of India and the general trend of a general reduction in interest rates – both lending and deposit – by banks following the demonetisation of Rs500 and Rs1,000 notes last month.
As per the EPFO income projections, retaining 8.8 per cent rate of interest for the current fiscal would have left a deficit of Rs383 crore. An 8.7 per cent rate of interest would still have left EPFO with a surplus of about Rs69.34 crore.
The retirement fund body was holding on to a Rs409 crore surplus accrued after providing 8.8 per cent rate of interest for 2015-16.
EPFO opted to recommend a lower rate, based on its projected earnings and expenditure projections for the current financial year.
The interest rate recommended by the EPFO will now have to be approved and notified by the finance ministry, EPFO has projected income of Rs39,084 crore for the current fiscal.
The finance ministry has reportedly been asking the labour ministry to align the EPF interest rate with other small saving schemes of the government like Public Provident Fund (PPF).
In September, the government reduced interest rates on small savings schemes marginally by 0.1 per cent for the October-December quarter of 2016-17, which resulted in lower returns on PPF, Kisan Vikas Patra, Sukanya Samriddhi Account, among others.
The labour ministry, however, wanted to retain 8.8 per cent for the current fiscal as well, a source said.