EPFO was pilloried for being conservative, but IL&FS episode proves it right in hindsight
Exempted provident funds break free of the EPFO on the promise of better returns and other terms for its members.
Even private sector biggies like HUL and Asian Paints have unwittingly exposed their employees to IL&FS bonds
The resolution process of the IL&FS mess by NCLT under IBC will be shaped by the pleas of the affected parties
The bonds are listed which explains the stock exchanges’ involvement in its sordid affairs
About 14 lakh employees of some 50 exempted provident fund trusts and pension funds must be ruing the adventurism of their retirement fund managers. Employees' Provident Fund Organisation (EPFO), the sarkari and default provident fund manager, all along at the receiving end of jibes for being rooted in conservatism, must be laughing up its sleeve for its staid and cautious investment policies.
That it has not even invested 5 percent of the investible funds it nurses on behalf of teeming millions of employees in equity through stock exchanges whereas the government has cleared the decks for 15 percent has been the constant refrain of commentators advocating risky investments. The EPFO can pat itself in the back also for steering clear of the IL&FS group’s bonds.
Market fundamentalists tease and egg on the EPFO no-end. They smirk at its conservative investment policy forgetting that the EPFO at the end of the day cannot afford any brinkmanship because when the rainy day starts post-retirement, they should not be left high and dry — in the lurch.
That precisely is where the employees of public sector companies like MMTC, Indian Oil, CIDCO, HUDCO, SBI and electricity boards of Gujarat and Himachal Pradesh find themselves in.
Even private sector biggies like Hindustan Unilever Ltd (HUL) and Asian Paints have unwittingly exposed their employees to IL&FS bonds that were AAA rated by our lax rating agencies, which did a shoddy and shallow job of appraisal.
One doesn’t know if the National Pension Scheme (NPS), which manages the retirement funds of the central government employees who joined its ranks from 1 January 2014, too had fallen hook, line and sinker for IL&FS bonds because unlike EPFO, which is a monolith, NPS funds are managed by numerous private fund managers.
The beleaguered provident and pension funds are rushing to National Company Law Tribunal (NCLT) to beat a deadline — 12 March 2019. The resolution process of the IL&FS mess by NCLT under the Insolvency and Bankruptcy Code (IBC) will be shaped by the pleas of the affected parties, who file their applications by this date.
IL&FS group has 302 companies all in a manner of wheel within wheel cast in a maze that defies comprehension of true ownership and unraveling of dues. Of them, 169 are Indian, 22 are green i.e., in a position to redeem all their commitments as per IL&FS’ own filing to the stock exchanges.
The bonds are listed which explains the stock exchanges’ involvement in its sordid affairs. While 10 are amber i.e., in a position to pay back just the secured creditors, 38 are admittedly red i.e., admittedly not in a position to service any debts.
It is still work-in-progress insofar as pigeonholing of some 100 companies is concerned into green, amber and red. This colorful classification hasn’t amused anyone though. If anything it has stoked fears among the members of the affected funds.
Exempted provident funds break free of the EPFO on the promise of better returns and other terms for its members. But there is something called risk-reward relationship — greater the risks, greater the reward but being a double-edged sword, risk can sometimes wipe out every penny when it comes to the crunch.
Equity is supposed to be the best long-term investment especially if the portfolio is well diversified. But it is unsecured, period. Bonds are invariably secured. Yet they have turned out to be as risky as equity for which the lion’s share of blame must fall at the doors of rating agencies.
Will all these public sector companies come forward to foot the losses incurred by their private provident and pension funds? Or would the government which waives loans of poor farmers also extend a helping hand to the affected employees singed by the shenanigans of IL&FS? Since such employees do not constitute a powerful vote bank, chances of their bailout is remote.
(The writer is a senior columnist and tweets @smurlidharan)
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