EPFO's low-cost housing move could be another bloomer. Here's why

The Employees' Provident Fund Organisation (EPFO) of late seems to be enjoying feverish and unproductive activities. On 10 February it made amendments to withdrawal rules that forbade employees resigning or retiring before the age of 58 from withdrawing the employer’s share of accumulation till the employee attained the age of 58.



After a couple of deferments, now the EPFO is dithering on the issue, and may well drop the amendment thus restoring status quo i.e. even if you resign at the age of 35, you will get every rupee in your PF account provided you had completed 5 years of completed service with one or more employers and remained unemployed for 60 days from the date of resignation.

The Finance Minister Jaitley had to look sheepish when faced with relentless pressure from unions he had to backtrack on his proposal to tax 60 percent of the withdrawals.

To be sure, this proposal didn’t emanate from the EPFO but definitely related to it.

And now comes the worst bloomer one can think of -- EPFO would kindly use its good offices to hand over the monthly provident fund contributions of an employee seeking low cost housing home loan from a banking or housing finance institution.

The labor ministry, under whose jurisdiction comes the EPFO, should have known more than anyone else that this simply cannot be done because the PF law clearly bars an employees provident fund accumulations to be attached, not even under a court’s order aka garnishee order.

The same prohibition applies to recurring attachments, so to speak, which securing an EMI with monthly PF contributions amounts to.

The idea behind the age-old and time-tested legal bar is provident fund belongs as much to the family as the employee himself and the family should not suffer the consequences of an employees wayward ways. It is shocking that the EPFO did not get its proposal to attach monthly contributions vetted by the law ministry before going public. Perhaps, the Labor Minister Bangaru Dattatreya cannot resist limelight whatever be the cause and cost! And our supine bureaucracy is more to blame. It must have watched the minister’s gaffe while laughing up its sleeves!

Let us forget for a while this legal bar against attachment of employee’s provident fund and let us examine the issue purely on merits. Does a home loan provider, be it a public sector bank or a housing finance company, needs to be pampered like this? The answer is an emphatic no because the default rate is the least in home loan finance.

The beauty of home loan both for the lender and the borrower is normally the value of the property itself is enough to address the concerns of the lender and to this extent the borrower is also spared the burden of having to find other collaterals. Of course in a falling real estate market, the lender runs a risk of inadequate realizations from the mortgage asset should the borrower default.

Indeed this is what happened in the USA in 2008, triggering a financial crisis of trans-continental proportions and implications. But that was an exception. In any case the home loan financier is shrewd enough to cover his ground. Why should the EPFO offer its services where it is simply not required? Secondly, what is the guarantee that the EMI and monthly PF contributions would match? Suppose the monthly employee contribution is Rs 1,800 and employer’s Rs 600 (Rs 1,200 goes to pension fund), the total attachment possible is Rs 2,400. What if the EMI is Rs 5,000?

And for the intermediation services provided, there would be costs. EPFO already incurs losses by paying more than the market rate of interest to employees. This would therefore be one more needless burden. Instead, it would do well to carry forward the UAN online facility more fully.

For example, every employee now can apply for UAN by going into the EPFO portal and watch his balance on a monthly basis besides being empowered to print his own passbook. Like internet banking, it affords the members a sense of empowerment and freedom from getting a new account each time s/he changes jobs.

UAN is portable across the employment career of an employee. It must allow online withdrawal as well. Of course there has been a proposal but it has been hanging fire for long. Such issues that ease up doing business with EPFO must be addressed.

Updated Date: May 10, 2016 12:54 PM