At its meeting last week, the Central Board of Trustees (CBT) chalked out a plan of action after discussing the status reports of the risky investments spread across companies including Reliance Capital, DHFL, IL&FS, Yes Bank, Indiabulls and IDFC, three CBT members said.

WITH CONCERNS being raised about the exposure of the Employees’ Provident Fund Organisation (EPFO) to downgraded debt securities, the retirement fund body is considering exercising all legal options, including criminal action, against companies for recovery of its stressed debt investments amounting to over Rs 12,800 crore.

At its meeting last week, the Central Board of Trustees (CBT) chalked out a plan of action after discussing the status reports of the risky investments spread across companies including Reliance Capital, DHFL, IL&FS, Yes Bank, Indiabulls and IDFC, three CBT members said. Measures for recovery will be taken for each company separately on “priority basis”, they said.

“The Board has flagged concerns about distressed investments of the EPFO, pushing for immediate recovery of the investments as early as possible. All possible legal options will be explored against these companies, including initiation of criminal action if there is prima facie evidence of a deliberate intent of default,” a CBT member told The Indian Express.

A senior EPFO official said all legal options are being considered and due process will be followed for recovery, adding, “Adequate time would be provided to such companies for a response, but if it is found that they are making payments to other companies while intentionally defaulting on EPFO’s repayments, then criminal action could also be considered.”

The EPFO has approximately Rs 12,874 crore invested in the downgraded debt securities. Its investment in Reliance Capital is pegged at around Rs 2,500 crore; about Rs 4,300 crore in Yes Bank; about Rs 2,500 crore in Indiabulls; about Rs 1,700 crore in IDFC; about Rs 1,300 crore in DHFL; and about Rs 574 crore in IL&FS. Investments by exempted firms, which manage EPF accounts on their own for their employees, is over and above this amount.

Need to be more open

WHILE the CBT has shown an intent to recover the money stuck in debt papers of stressed companies, the fact is that, even as the government has been pushing for transparency on all fronts, the EPFO’s investments remain largely opaque.

Responding to an email sent by The Indian Express, Gagan Banga, vice chairman, MD and CEO of Indiabulls Housing Finance said, “Indiabulls has repaid Rs 1,000 crore out of Rs 2,500 crore to EPFO earlier this month.”

“Indiabulls Housing Finance is raising additional equity of Rs 2,200 crore that will significantly raise our capital adequacy ratio. While we witnessed a downgrade from AAA to AA, I expect the securities to witness an upgrade going forward,” he added.

While IL&FS said it doesn’t want to comment, no other company responded to the mails sent.

The EPFO’s stressed investments had surfaced as early as last year when, in the aftermath of the NBFC crisis, many of these debt investments were downgraded by rating agencies. The Finance Ministry had also questioned the Fund’s exposure to IL&FS and other risky entities before clearing the interest rate payout for 2018-19.

Due to liquidity concerns, the EPFO has opted to split the interest rate payout for FY20 — 8.15 per cent (estimated at Rs 58,000 crore) based on debt component will be paid soon, while the remaining 0.35 per cent (estimated at Rs 2,700 crore) will be subject to redemption of the EPFO’s units in exchange traded funds before December 31. At 8.5 per cent, the EPF interest rate is at a seven-year low. If the redemption of units does not come through as anticipated, the 8.15 per cent interest rate would be the lowest since 1977-78, when the EPFO paid out an interest rate of 8 per cent.

The returns from the equity investments of the EPFO, adding up to over Rs 1 lakh crore, had turned red in 2019-20, yielding (negative) -8.3 per cent. There have been concerns about the EPFO interest rate for 2020-21 financial year, which would be finalised early next year, given the volatility in stock markets. The EPFO invests 85 per cent of its annual accruals in the debt market and 15 per cent in equities through ETFs.

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