Financial Daily from THE HINDU group of publications
Tuesday, Jul 16, 2002
Money & Banking - Financial Institutions
Industry & Economy - Small Savings
IFCI may be denied access to EPF funds ICICI also to be struck off PFI list
NEW DELHI, July 15
THE Finance Ministry is planning to knock off the troubled financial institution IFCI as well as ICICI from the list of eligible public financial institutions (PFIs) whose bonds can be subscribed to by provident funds.
The proposal to delete IFCI from the list of PFIs whose bond offerings are eligible investments for provident funds stems from the default by the institution on interest obligations to the Employees' Provident Fund, besides the risk posed to the repayment of the principal amount, officials here said.
The exposure of the EPF to bonds issued by IFCI alone is reckoned to be well over Rs 5,000 crore. The FI recently defaulted on its interest payment obligations aggregating over Rs 300 crore to the EPF.
According to the investment pattern for provident funds prescribed by the Finance Ministry, 40 per cent of their funds can be invested in the bonds and securities of PFIs, including public sector banks and also public sector companies besides certificate of deposits issued by commercial banks.
Over the last year or two, IFCI has been going around with a hat to the Finance Ministry and some of its shareholders in an effort to revive itself.
However, the case of ICICI is different. With the reverse merger of ICICI into ICICI Bank, it is no longer a financial institution as specified under Sec.4 (a) of the Companies Act. Therefore, it will no longer be in the privileged list of financial institutions that can seek access to a captive investor base like the provident funds.
ICICI itself had written to the Finance Ministry seeking its exclusion after its transition into a bank, according to officials here. A notification is expected to be issued shortly by the Finance Ministry on the exclusion of these two institutions, officials said.
In the past, IDBI, ICICI and IFCI had raised thousands of crores through bond offerings by tapping the provident funds.
Over the last few years, the yield on the investments made by the EPF in public financial institutions and PSUs have been declining.
The Central Board of Trustees (CBT) of the Employees' Provident Fund Organisation, which wants to retain the interest on the EPF balances for 2002-03 at 9.5 per cent, has also sought more flexibility in the investment pattern. The CBT wants the Finance Ministry to permit the EPF to trade in some of the bonds it holds.
According to a trustee, the EPF has on its portfolio government bonds carrying a coupon rate of as low as 2.5 to three per cent. The fund is prohibited from trading in the bonds it has on its portfolio going by the investment pattern prescribed by the Finance Ministry.
The CBT has suggested to the Government that it could participate in a securitisation programme for a public sector company provided it is backed by the comfort of a sovereign guarantee. This could benefit some of the relatively weaker PSUs that were strapped for funds besides ensuring a higher return for the EPF, an official said.
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