NEW DELHI: Retirement fund body Employees Provident Fund Organisation (EPFO) on Monday reduced interest rate on provident fund deposits to 8.65 per cent for 2016-17 from the current 8.8 per cent.
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 is in line with the falling rate regime which has seen RBI cut key lending rates and banks reducing deposit rates, something that has gathered pace following the demonetisation of Rs 500 and Rs 1,000 notes last month.
The retirement savings agency opted for recommending the lower rate, which needs to be notified by the Finance Ministry, based on its projected earnings and expenditure projections for the current financial year.
Union representatives on the EPFO board of trustees sought that the rate be retained at last year's level but the agency opted to take a decision based on its finances.
As per the EPFO income projections of Rs 39,084 crore for the current fiscal, providing 8.8 per cent rate of interest on EPF deposits will leave a deficit of Rs 383 crore. There would be a surplus of about Rs 69.34 crore if 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 total corpus in EDLI administration account as on March 31, 2016 is Rs 2,372.83 crore. The interest generated on such a corpus would be around Rs 17.5 crore annually.
The Finance Ministry had earlier this year decided to lower interest on EFF for 2015-16 to 8.7 per cent from the 8.8 per cent approved by the CBT.
The government had to roll back the decision and provide 8.8 per cent rate of interest on EPF deposit for 2015-16 following protests by trade unions.
