EMPLOYEES' PROVIDENT FUND O~ANISATIQNNEW DELHI

I

l03rd Meeting of theI

FINANCE AND INVESTMENTI,

COMMITTEEI

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[CENTRAL BOARD OF TRUSTEES, EMPLOYEES' fROVIDENT FUND],

on28/01/2011 at 2.30 p.M.

VENUE:CpnferenceHall,

I 3rd, Floor, EPFO! Head Office,

Bhavishya Nidhi Bhawan,14,~hikaiji Cama Place,

iNew Delhi -110066.

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Draft Minutes of the 10Srdmeeting of Finance & Investrntint Committee held on. I

28.01.2011 !

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The 103fd meeting of the Finance and Investment cotittee, Central Board of

Trustees, Employees' Provident Fund was held at 2.30 P . on 28.01.2011, in the

. Conference Room, 3" floor E':O Head Office, New Delhi. I

(a) The following were present in the meeting: I

1. Shri S. Chatterjee Chairmari,Finance and Investment Committee, CBT, EPF andCentral Provident Fund Commis~ioner, Employees' ProvidentFund Organisation, Head Office. .. .

2. Shri Chaman Kumar Vice Chairman, finance. and .Inv~f~ent c~~mittee, CBT, EPFand Add!. Secretary,flnaOOlai Ajdvlsor, MIniStry of Labour &Employment, Government of India!

3. Shri A. D.Nagpa\ Member, CBT, EPF (Employees' f~epresentative)4. Shri Santosh Saraf Member, CBT, EPF (Employers' R~resentative )5. Shri Sharad PatH Member, CBT, EPF(Employers'H~presentative)6. Shri Raiesh Bansal Convener and FA & CAO, EPfO I

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(b) The following·officers attended:1. Shri K. L. Goyal, RPFC-I(IMC)

2. Shri Rajiv Bisht, RPFC-U(IMe)

3. Ms. NidhiSingh, RPFC-II (IMC)

4. Shri Rakesh Kumar, RPfC-1I (IMe)

Dr. G. SanjeevaReddy, Shri B.N. Rai and Dr. Ram S. lameja could not attend the

meeting and had sought leave of absence.

The Chairman welcomed all the members and officers prrsent in the meeting.• I

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Item No.1: Confirm.ation of the Minutes of 102nd Meeting of tt)e Finance and InvestmentCommittee held on 07.12.2010 at EPFO HO, NevyDelhi . . .

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. . I . . . .The minutes were approved by all the memr, and Shri SantoshSaraf·suggested that in future the reconciledcatego .se statement of security .holding of EPFO should be.placed before FIC ,er reconciling the 'statementof holdings with the depository. I . .

Item No.2: Action Taken Report on the recommendati~ns of the 101st and 102nd

Finance and Investment Committee~ I··

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The Committee took note of the Action Taken Report.• I

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Item No.3:- Review of Investments in respect of Provident Fund, Pension Fund &EDLI Fund up to 31.12.2010 f

Item 4:

Item No 5:

Item No 6:

Item No 7:

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The Committee took note of the statement of ~chemewise holdings. ShriSantosh Saraf suggested that it should be co~firmedthat the holdingsreflected in th~ statements are drawn from re~i1ed accounts. This wasnoted for future. !

Relaxation in Investment Pattern to also al,ow investment in TermDeposit Receipts (TOR) issued by Public Sectot Banks for duration morethan a year

The item was withdrawn.

Review of decision on deferring further Inyestment in LlC HousingFinance Company in PVT. Sector Category. i

Shri A.D. Nagpal suggested that in view of i the explanation given byDepartment of Financial Services, Ministry of Fin.nce and reaffirmation of thehighest rating by Mis, CRISIL and,MIs. CARE in respect of MIs. lIC HousingFinance Limited, we may recOmmend U1erestQration of investment in LICHousing Finance ltd. i

The Finance and Investment Committee, EPF considered the agenda itemand decided to recommend to CST,EPF to take ajftnal decision on the issue.

Discussion on letter of Finance Ministtryregarding Government. . I .

Guarantee on investments of ISPF monies in iCapital Market.

The Finance and Investment Committee,EPF took note of the .tetter of theFina~ Ministry and recommended thatcommejMts Of EPFOthereon may beplaced before CST, EPF. I •

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Discussion on letter of Finance Ministry "garding ratificati!Jnof thedecision to pay 9.5% jnterest on EPF accumulation for the year 2010';'

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2011. . :

The Finance and Investment Committee, EPF [took note of the letter of theFinance Ministry and the reply of the labOur Ministry thereon. The mattermay be placed before the CBT,EPF meeting. .!

The meeting ended with vote of thanks nr the Chair .

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103'" meeting orFIe -28.01.2011

EMPLOYEES' PROVIDENT FUND qRGANISATION

AGENDA BOOK103n1 Meeting of the Finance & Investment Cfmmittee, CBT, EPF

Date: 28. 01 .2011 INDEX·OF ITEMS Time: 2.30 P.M

Agenda i Page No.ItemNo.l. Confirmation of the Minutes of 102nd Meeting of tne Finance and

Investment Committee held on 07.12.2010 at EPFQ Head OffICe, 1-5New Delhi

2 Action Taken Report on the recommendations of the 101st and102nd Finance and Investment Committee 6-10

3. Review of Investments in respect of Provident ffund, PensionFund & EDU Fund up to 30.12.2010 11-15

4. Relaxation in Investment Pattern to also allow lnvesbnent inTerm Deposit Receipts (TDR) issued by Public Sector 16-21Banks for duration more than a year.

5. Review of decision on deferring further Investment ln UCHousing Finance Company in PVf. Sector category. 22-29

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AflY other itemwith the permission of the chair .

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103"" meeting orFle -28.01.2011

(Item No.l:- Confirmation of the Minutes of the 102ndlmeeting of the Finance

•. Invesbnent Committee held on 07.~2.2010 at EPFO, HQs,New Delhi.' I

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Minutes of 102nd Finance and Investment Com~ittee meeting held on 07th

December 2010 were circulated vide letter No Invest. I I/l(102)/FIQ2010/34137-60dated 13.01.2011. No Comments have been received on 1jheminutes of the above saidmeeting. Copy of the minutes is enclosed as Annexure-. to this item.

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Minutes may be taken as confirmed.

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Item No.1Annexure-A

Draft Minutes of the 102nd meeting of Finance &. Inyestme~ Committee held on07.12.2010 I

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The 102nd meeting of the Finance and Investment Comfittee, Central Board of

Trustees, Employees' Provident Fund was held at 12.00 Noon Ion 07.12.2010, in the

Conference Room, 3rd floor EPFO.HeadOffice, New Delhi. I

(a) The following were present in the meeting:

1. Shri S. Chatterjee Chairman, Finance and Investment iCommittee, CBT, EPF andCentral Provident Fund Commissioner~ Employees' Provident FundOrganisation, Head Office. I,

2. Shri Chaman Kumar Vice Chairman, Finance and InvestJtlent Committee, CBT, EPFand Addl. Secretary, Rnancial AcMsor, Ministry of Labour &Employment, Government of India I

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3. Shri A. D. Nagpal Member, CBT, EPF (Employees' ReiJIlpt:J ltative)4. Shri B. N. Rai Member, CBT, EPF (Employees' RetJI<;;~Itative)5. Shri Santosh Saraf Member, CBT, EPF (Employers' Repre ~tative)6. Shri Sharad Patil· Member, CBT, EPF (Employers' RetJI<;;; ~ tativEtl7. Shri Abhay K. Singh Convener and FA & CAO, EPFO

(b) The following officers attended:

1. Shri K. L. Goyal, RPFC-I(IMC)

2. Shri V. Shyam Sunder, Director (Audit)

3. Shri Rajiv Bisht, RPFC-I1(IMC)

- 4. Ms. Nidhi Singh, RPFC-I1(IMC)

Shri Rakesh Kumar, RPFC-U (IMC)5.6. Shri Manoranjan Kumar, RPFC-II (Investment)

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Dr. G. Sanjeeva Reddy & Dr. Ram S. Tarneja could not attend the meeting and had

sought leave of absence. I• i

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The Chairman welcomed all the members and officers present in the meeting.I

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Item 1: Confirmation of the Minutesof 101st Meeting of the Firance and InvestmentCommittee held on 26.11.2010at EPFOHQ, New Del~i -

The-minutes were approved by all the members.

Item 2: The Budget Book consistingof Revised Estimates ifor the year 2010-11and Budget Estimates for the year 2011-12 iwas placed before theFinance & Investment Committee in its 10200 meetinp held on 07.12.2010 inconference Hall at EPFO,Headquarters.

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• Sh. A.D. Nagpai, Employee's representative expressed tnet the variation in all the

accounts are not proportionately uniform. He sought to know the reason for

difference in increase I decreasevarying for Nc No. 1 and 2. It was informed that

the two accounts have different incomesone by way of corjltribution which includes!

voluntary contribution whereas the account number 2 is for administrative

expenditure which is restricted to ceiling. Since the incom¢ into the account or on-

different base the proportionate uniform growth will not be available.

• Sh. B.N.Rai, Employee's representativeexpressed the views ,that the specific reasons

for variation on Income and Expenditureshould be mentioned on eachoffice on each

page and variation should be not more than the 10% in any case. The Chairman

instructed that each office having variation must beSought to give proper

justification for the variation from next year onwards he assured the members that

this exercise will be carried out meticulously in future. He further suggestedthat

variation between BE for next year and RE for current year need to be examined

closely and if there is any abnormality it sheuld be matter o~concern. Itwas further

informed that the major variation in some offices mainly due to improper projection

of budget estimate in the previOUSyear which has now been rationalised basedon

actuals for the first half of the year.

• Sh. Santosh Saraf and Sh. SharadPatil Employer's representatives expressedtheir

views that the specific reasonsfor variation on Income and Expenditure should be •

mentioned on each page and variation should be not more than the 10% in any case

and also have suggested that the expenditure under Furniture & Fixture should not

be booked under the head RevenueSection , it should be booked under the head

capital Expenditure.

• FA&CAOclarified that as per the Accounting Policyof the O~ganisationexcept for the \Land & Building all other headsof expensesare booked under the headof Revenue

Expenditure. The CPFCadvisedthat this should be reviewed and the capital items

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havinglife spread over more than one year must be caPitaliZ1 for proper accounting

treatment as per standard practices. I

• l11e Voce Chainnan, Add!. sec., Ministry cKLabour & EmPI+ent desired RE & BE

should follow up Government guidelines. Variation on hig er side should be re-

examinedand the variations should usuallybe in the range 0 10 -15 %

• The Chairman expressed his displeasures on negative va ation in Pension Fund

Contribution and directed to re-examine the variation R ion wise. He further

informed that due care will be taken and proper analy made in future while

preparing RElBE and all reasons would be properly brou~t out from next year

onwards. i

• The members pointed out that there is a surplus in Account ~0.2 to the tune of 993I

crores and the rate of Administrative chargesneedsto be reViewed.The Employee's

representativesexpressed that this is due to savingson staff fast by non-recruitment

and that the shortfall vacancies should be filled up by new recruitment so that theI

proper service can be rendered. The Chairmanclarified thet the directions to theI

concernedDivisions has already been given that the vacancif upto 31.12.2010 may

be worked out and process for recruitment will be started i the month of January

2011. II

• FA&CAOclarified that while formulating the estimates, instru~ions of the Ministry ofI

Finance,Department of Expenditure vide their letter No. 7(1)E.Coord/2009 dated 7th

September2009 have been followed which stipulatesthe gui¢telineson variations. By

and large, the guidelines ~ave been followed but f(~rt~ s~ified heads for whichseparatereasonsare being assigned. !

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After the discussions, subject to the observationsmade by Ithe members, the itemwas recommendedfor placing before the CBT. I

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Item 3: Relaxation in Investment Guidelines to increase limit and expandthe basket of instruments in Pvt. Sector I

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The matter was first placed in the ioi- meeting ~f the FIC, wherein theCommittee expressed concern about the security of the bo1d, and even if secured,the level of such security. i

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The matter was placed again alongwith the relevrnt desired informationregarding nature of security of the EPFinvestments. I

The Committee decided to recommendthe matter ~r approval to the CST,

subject to the following conditions: I,,

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1. All investments in the Private Sector Corporate s should be securedonly;

2. The security should be through the mortgage of the assets, may bethrough an SPV or it should be a fixed charged a I or first charge;

3. The rate of return on such instruments should fetch at least 200 basispoints higher than the corresponding PSUBonds

4. The ,Networth of the entity should be Rs. 5000

The other conditions as stipulated in the agenda it

The Chairman also proposed to put a cap on maxim m investment amount inI

any single entity. However, it was thought proper to leave ~tto the discretion of the

Fund Managers. iI .

The FIC also desired that the recondled category 1se statement of security

holdings of EPFObe regularly placed in all the FIC meetings lin future.II

Themeeting ended with vote of thanks to the Chair.. I

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ActionTaken

lIJJ- meetingofFIC-28.01.2011

Item No.2: Action Taken Report on the recomllft:lII~ationsof the 101stand 102- Finance and Investment ( ommittee.

Reference Subject Decision

101st FIe held on 26.11.2010

Item No.3 Review ofInvestments inrespect of ProvidentFund, Pension Fund& EDU Fund up to30.09.2010

It was decided by thecommittee that figures ofinvestment in PSU/PVTSectorBonds/ Securities must beshownseparately.

Decisionof FICwas noted forcompliancein future.(Action Complete)

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Item No.4 Performanceevaluation of thePortfolio Managersfor the periodpending 30th

September2010

It was asked by one member if !Decisionof AC was noted forany fund manager has ~ompliancein future.performed below the ~ActionComplete)benchmark on the criteria of - I

yield performance. It wasclarified by the FA& CAO thatnone of the fund managershas performed below thebenchmark during the periodApril 2010 to September2010.Further it was decided toenclose only summary of theperformance evaluation reportin the agenda booklet in placeof the entire report in future.it was further decided thatpresentation by the consultantmaybe done once in a year.

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103- meetingofJi7C-28.01.2011

Item No.5 Shifting investment The issuesrelating to pattern The proposalwas recommendedfrom IIFCL Bonds to of investment are actually - to the ExecutiveCommittee forSOLs. covered under the domain of consideration, which in its 69th

the ExecutiveCommittee (EC). meeting held on 08.12.2010However, there was a approved the proposal forprecedent where on referring recommendation to the CBT.the matter regarding 'New The CST in its 191st meetingInvestment Pattern', the e.c. held on 09.12.2010 approvedhad referredthe matter to the the proposal forAC for its views. Keeping that recommendation to thein mind the matter was placed Government. The proposal hasbefore AC for their view on it been sent to Governmentwhichwouldbe an input for EC accordinglyon 20.01.2011.meeting to be held on08.12.2010.

Item No.6

Item 7

Revised Estimatesfor the year 2010-11and BudgetEStimates for theyear 2011-12 for theEmployees'Provident FundScheme 1952,Employees' PensionScheme 1995 andEmployees' DepositLinked InsuranceScheme 1976

It was decidedto again rectifyall the errors and circulate toplace in next FIe.

The matter was placed in the102nd meeting of the Financeand Investment Committeeheldon 07.12.2010.

RelaxationinvestmentGuidelinesinvestment inBonds/Securities ofPSUs/PSBs/PSFIs-Expansio" of limitsto Networth

in lhe Proposalat ParaA (a) wasflot approved.

for The proposal as outlined atPara A (b) was approved forrecommending to the CBT,EPF.

The proposal with therecommendation of FIC wasplaced in 191st meeting of CBTheld on 09.12.2010, in whichsame was approved. Thedecision of the CBY wascommunicated to all thePortfolioManagers.(Action Complete)

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Item 8

Item 9

RelaxationInvestment

in The committee was concernedabout the security on the

Guidelines to bond, and even if secured,theincrease limit and level of such security.expand the basket It was decidedthat this shouldof instruments in be examined further regardingPvt.Sector the security of the bond

invested by the EPFOso farand whether we should addthe private bond, should it besecuredand with whom.The same should be placedbefore the committee on07.12.2010 for furtherdiscussionand decisionon thematter.

Investment in dual The item was approved for The proposal with theAM (SO) rated recommendingto the CBT,EPF recommendation of FIC wasinstruments placed in 191st meeting of CST

held on 09.12.2010, in whichSame was approved. TheI

~ision of the CST wastommunicated to all theI

portfolio Managers.(Action Complete)

The item was placed afreshalong with the informatiOndesired by the FIC in its 10200

meeting held on 07.12.2010 forconSideration.'Action Complete)

Item 10 Deferring furtherInvestment in UCHousing FinanceCompany in PrivateSector Category(TabledItem)

The item was recommendedby FIC not to take furtherexposure in the entity till thewhole issueis crarified

the propesal with the~mendation of FIC wasplaced in 191st meeting of CSTheld on 09.12.2010, in whichI

same was approved. Thedecision of the CBT wasfommunicated to all thef0rtfolio Managers for~ompliance.~Action Complete)

102nc1 FIe held on 07.12.2010

Item No.2 Revised Estimates for It was decidedthis item wasthe year 2010-11 and recommended for placingBudget Estimates for before the CBT,EPF.the year 2011-12 for

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n the recommendation of020d FIC held on 07.12.2010,he Revised Estimates for theyear 2010-11 & Budget

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103- meeting orFIe -28.01.2011

Item NO.3

the Employees'Provident FundScheme 1952,Employees' PensionScheme 1995 andEmployees' DepositLinked InsuranceScheme1976

Relaxation inInvestment Guidelinesto increase limit andexpand the basket ofinstruments in Pvt.Sector

The Committee decided torecommend the matter forapproval to the CBT,subject to the followingconditions:1. All investments in the

Private SectorCorporate Bonds shouldbe secured only; .

2. The security should bethrough the mortgage ofthe assets, may bethrough an Spy or itshould be a fixedcharged and I or firstcharge;

-So The rate of return onsuch instruments shouldfetch at least 200 basispoints higher than thecorresponding PSUBonds;

4. The Net worth of theentity should be Rs.5000 Crores or more.

The other conditions asstipulated in the agenda itemshall remain. -The Chairman alsoproposed to put a cap onmaximum investmentamount in any single entity.However, it was thoughtproper to leave it to the

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Fstimates for the year 2011-12~ere placed before 191stmeeting of CBT,EPF held ont>9.12.2010. The same wereapproved. After that RevisedEstimatesfor the year 2010-11havebeen communicated to allthe Regional Offices/Field:>ffices including Head Office¥idethis office letter No. Budget~05(44)/2010-11/2011-12/Main~11102dated 07.01.2011.'Action Complete)

pn the recommendations ofFIC, the Item was placedbefore~e CBT for approval in its 191stmeeting held on 09.12.2010.The item was however deferredoy CST, and is not beingpursued.(Action Complete)

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llJr meeting o[FIC -28.01.2011

discretion of the FundManagers.The FIC also desired thatthe reconciled category wisestatement of securityholdings of EPFO beregularly placed in all theFIC meetings in future.

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103'" meeting srnc -28.01.2011

Item No.3:- Review of Investments in respe ct of Provident Fund,Pension Fund&. EDU Fund up to 31 12.2010

A. Review of Investment in respectof Provident Fund ~son 31.12.2010

INVESTMENTCORPUS-UftEXEMPTEDSECTOR I(All figures ill Crores of Rupees)

A. PROVIDENTFUNDI~NTS(ATFACEVALUI El As on

S.N. 31.03.07 31.03.08 31.03 09 31.03.10 31.12.10

1 Central Govt. 18146.22 24004.21 32099 24 40899.82 45273.65Securities (24.30%) (23.97%)

2(a) State Govt. 11970.43 16429.09 19831 69 25644.61 27926.42(15.24%) (14.79%)

(b) Govt. Guaranteed 1497.32 1498.22 2830. )1 2643.07 2450.27Securities (1.57%) (1.30%)

3 Special Deposit 52232.23 52297.55 52480 92 52577.51 52628.53Scheme (31.24%) (27.87%)

Public Sector II 49268.564 Financial I

I (26.09%)Institutions35735h3 46516.3619991.16 27274.63

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(27.64%)-

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5 Private Sector 11311.94Bonds/Securities (5.99%)

II 168281.37 188859.37Total 103837.4 121503.7 14297 7.39 (1000/0) (100%)

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l03nl meetingofFlC-28.0J.2011

B. Review of Investment in respect of Pension Fund as on 31.12.2010

INVESfMENT CORPUS- UNEXEMPTE o SECTORI I

B. PENSION FUND INVESTMENTS (AT F~CE VALUE) As onI 1

(All ligures in Crores 0'RuoeesJ31.03.07 31.03.08 31.03. )9 31.03.10 31.12.10

1 Central Govt 17950.73 20289.35 24943. 9 30503.13 33155.04Securities (24.64%) (24.97%)

2(a) State Govt 10068.05 11896.36 14668.<12 15028.7 15054.19(12.14%) (11.34%)

Govt.2934.7 2659.70(b) Guaranteed 1636.08 1620.95 1630.0~ (2.37%) (2.00%)Securities

3 Special Deposit 1400.52 1400.52 1400.5~1400.52 1400.52

Scheme (1.13%) (1.05%)

PublicSector 27602.054 FinancialInstitutions 17616.01 22085.18 24722.~ 3 28117.27 (20.79%)

(22.72%)

5 Private Sector 7119.76Bonds/Securities (5.36%)

6 PublicAccount 32934.83 36,809.06 41,213. 7 45806.11 45806.11**(37.00%) (34.49%)

Total 81,606.22 94,101.42 108578. 28 123790.43 132797.37- (100%) (100%)** ProvisionalfJguresdue to the same under reconciliation

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103M meeting srrtc -28.01.2011

Review of Invesbnent in respect of EDU Fund as.on 3 L.12.2010

.INVESTMENT CORPUS- UNEXEMPTED SECTOR

C. INSURANCE FUND INVESTMENTS (AT FACE VAUJ E) As on

(All figures in Crores 01 RUDe ~J31.03.07 31.03.08 31.03. P9 31.03.10 31.12.10

Central Govt. I 1143.84 1260.601 Securities477.77 597.04 846.2f (17.00%) (14.49%)

2(a) State Govt. 360.7 537.11 645.4) 694.04 735.20(8.50%) (8.45%)

(b) Govt. Guaranteed 29.85 29.65 37.~ 109.8 109.80Securities (1.34%) (1.26%)

3 Special Deposit 2.5 2.5 2.5 2.5 2.50Scheme

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(0.03%) (0.03%)

4 Public Sector 1322.20Financial Institutions 1226.16 (15.20%)

751.77 868.54 1019.ff4 (15.00%)

5 Private Sector 275.20Bonds/Securities

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(3.16%)

I 4995.42 4995.42**6 Public Account 3910.95 4243.38 4604.(7 (61.13%) (57.41%)-

8171.76 8700.92TOTAL 5533.54 6278.22 7155~3 (1000/0) (1000/0)

** Provisional figures due to the same under reconciliation

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10~ medinll.oiFIC -28.01.2011

Corpus under different schemeslying investedin the securities ap~ved by the Central Govt.

(All Dgures in CroresofRuoeesJAT FACE VALUE As on31.03.07 31.03.08 31.03.09 31.03.10 31.12.2010

i) Provident 103837.36 121503.7 142977.39 168281.37 188859.37 .Fund (56.05%) (57.17%)

Ii) Pension 81606.22 94101.42 108578.28 123790.43 132797.37fund (41.23%) (40.20%)

Employees' -Deposit 8171.76 8700.92Iii) Linked 5533.54 6278.22 7155.33 (2.72%) (2.63%)InsuranceScheme

Total 190977.12 221883.34 258711.00 300243.56 330357.66(1000/0) (1000/0)

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10j'" meeJinr:. oiFle -28.01.2011

Break-up of investments in different securities (A r- FACE VALUE)

(FOR TOTAL OF ALL THREE FUND)

(All figures in Crores of Rupees) As on31.03.07 31.03.08 31.03.09 31.03.10 31.12.10

i) Central Govt. 36,574.72 44,890.60 57,889.06 72,546.79 79689.29Securities (24.16%) (24.12%)

State Govt. /

Ii) Govt. 25,562.43 32,011.38 39,643.26 47,054.92 48935.59Guaranteed (15.67%) (14.81%)SecuritiesSpecial Deposit

53,883.94 53,980.53 54031.55Iii) Scheme of 53,635.25 53,700.57 (17.98%) (16.36%)Central Govt.

PublicSector 78192.80iv) Financial (23.67%)Institutions 75,859.7938,358.94 50,228.35 61,4n.5q (25.27%)

v) Private Sector 18706.90Bonds/Securities (5.66%)

vi) PublicAccount 36,845.78 41,052.44 45,817.2~ 50,801.53 50801.53**(16.92%) (15.38%)

~ ~ 300243.56 330357.66Total 1,90,977.12 2,21,883.34 258711.(l 0 (100%}

(100%)

** ProvisionalfigUresdue to the same under reconciliation

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103'" meeting o(FIC -28.01.2011

Item 4: Relaxation in Investment Pattern to al allow investment inTerm Deposit Receipts (TDR) issued by ublic Sector Banks forduration more than a year

1. The invesbnent strategy of CBT EPF Funds is governed the Investment Pattern of2003 (copy enclosed as Annexure -A) prescribed b the Government of India(Ministry of Labour). In the Investment Pattern there is restriction on the tenure ofinvestments in term deposit receipts of the PubHcSector Banks which is classified asInvestments for short duration (less than a year).

2. Recently the Indian Financial market witnessed acute liq idity crisis in which all thebanks were forced to raise the interest on their lDRs so as to raise the money form themarket The portfolio managers of EPFOsensing this attra . e opportunity approachedEPFOfor relaxation in the Investment Patter on restriction i tenure of TOR investmentsso as to enable them to capture the higher yields being offe ed in TOR investments viz aviz the other investment opportunities permissible as per e existing pattern. Howeverthey were not able to capitalize on this unique opport nity in view of the tenurerestriction on TOR investments, in the current investment ttern.

i. Continuous profitability for immediately preceding th ee years

uately addressed in the NewB) notified by the Ministryh it is provided as per Parauration issued by schedule

3. This restriction in tenure of TOR investments has been adInvestment Pattern 2008 (copy enclosed as Annexureof Finance vide notification No 288 dated 14/08/2008 in wh(ii) (b) ''Term Deposit Receipts of not less than one yearcommercial banks.

Provided that the scheduled commercial banks must meet c

ii. Maintaining a minimum capital to RiskWeighted

iii. Having net non-performing assets of not more than % of net advances;

iv. Having a minimum net worth of not less than Rs 200 crores. •

4. This kind of opportunity will keep coming in rapidly growi economy like India wherethe requirement of borrowing by lending Institutions will outstripping the supply inwhich large Institutions like EPFOcan capture higher yields rough TOR investments. Itmay be noted that TOR investments are highly liquid bei at the call of investor forredemption anytime earlier than maturity as well as very sa if invested only with Public·Sector Banks. Thus if EPFO can consider requesting the G vernment for relaxation inthe existing investment pattern for allowing investment in TORs of more than a Year

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103m meeting orFle :....28.01.2011

then it will allowan additional avenue to EPFO within the current investment pattern forcapturing higheryields in very safe and liquid avenue likeTO~.

5. In this regardfollowingproposat is placed for consideration:-

PRESENT PROVISIONS1. In the Invesbnent Pattern

2003 for investment inTORs it is provided inPara (iii) (b) as follows"Short duration (less thana year) Term DepositReceipts(TOR) issuedbyPublicSectorBank"

SUGGESTED CHANGES EFFECTS OF CHANGESThe existing restriction on I the proposal is consideredthe tenure of TOR it will open new avenues forinvestments of less than ir vestment in highly liquidone year be removedand and safe avenue in the forminvestment in TORs r:i 0 TORs of Public Sectormore than a year be Eanks.permitted in Public SectorBanks.

The proposal as ouUined at Para 5 above in column - "Suggested Changes" issubmitted for consideration of FIe and recommending to the COTto recommendto the Central Government for an appropriate change in the extant InvestmentPattern.

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'J>:r:~. ....!..-- ,,~ - -.;. -1(NNE»t:TR~_AIiE.K No.~

IINVESTMENT PAITERN I

I. i Subject: Pattern of investment to. be followed by the Non-~vernment Provident

Funds, Superannuation Funds and Gratuity Funds. I. . i

No. F.· 5 (18)-ECB/2001 - In partial modificati~n of this Ministry'sNotification of number F. 11(3)-PD/98 dated 31st March 1999; the pattern of investmentfor investment. for incremental accretions by the non-Governn#nt Provident Funds,Superannuation Funds and Grat~ity·Funds shall be as follows iffective from 1st April,2003:- .

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30%

(i) Central Government Securities as defined in Sec. 2 of thl!! PublicDebt Act. 1944 (18 of 1944); and lor units of such Mut~1 Fundswhich have been set up as dedicated Funds for invest,nent inGovernment securities and which have been approved I by theSecurities and Exchanae Board of India; I

(ii) (a) Government Securities as defined in Sec. 2 of the PublicDebt Act, 1944 (18 of 1944); created and issued by any.State Government; andl or units of such MutuaI Fundswhich have been set up as dedicated Funds for im(estmentin Government securities and which have been ~pprovedby the Securities and Exchange Board of India: anq lor

(b) Any other. negotiable securities the principal Wh..ereofandinterest whereon is fully and uneondltlonally guara~teed bythe. Central Government or any State Government exceptthose covered under (iiil (a) below I

(Hi)

(iv)

(v)

INVESTMENT PATIERN Percentage amountto be invested

25%

15%

(a) Bondsl Securities. of 'Public Financial lnstitu~.ons' asspecified under Section 4(1) of the Companies Aqt; "publlcsector companies" as defined in. Section 2(36-1> of theIncome Tax Act, 1961 including public sector bank,: and lor

!

Short duration (less than a year) Term Deposit Recej~ts (TDR)issued by 'public' sector banks . I

To be invested in any of the above three categories as ~cided bytheir Trustees. ! 30%The Trusts, subject to their assessment·of the risk - reu rn prospects, may invest up to1/3fd of (iv) above, in private sector bondsl securities, which have an investment g~aderating from at least two credit ratino agencies.

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:; Any moneys re~lved on the maturity of earlier Inv,stmenls reduced by obligatoryoutgoing shall be invested in accordanCe with the i~vestment pattern prescribed inthis Notification. I,

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II Any money received on the maturity of earlier lnvestrnents reduced by obligatoryoutgoing shall be invested in accordance with the irjlvestment pattern prescribed inthis Notification. :,

III In case of any instruments mentioned above being rated and their rating fallingbelow investment grade and the same rating has: been confirmed by two creditrating agencies then the option of exit can be exercised.

IV The investment pattern as envisaged in the above paragraphs may be achieved by

the end of a financial year .

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To be published in the Gazette of India,Extraordinary Part I -Section 1

Government of IndiaMinistry of Finance

Departmen~ of Economic.Affalrs

New Delhi, the 14th August, 2008

1. hi partial modification of this Ministry's Notification No, S(S3)12002..fCB & PR dated 24th January, 2005, thepatternofinvestinenUo befollowed l:>yNon-Government PrOVident FUnQs,Superannuation funds and GratuityFundsshaUb¢as·fOIIows;,effective.fromc1~Aprili2009:- _

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(II)

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INVESTMENTPATTERN Percentageamount . to beinvested

.·:..(1) (a) Govemment securities.~

(b) ()tlJer ~ritle52the.prlncipal wilereofilnd Interest whereon IsfuUy and uncondltlonl)'llyguarilnieed 'bYthe central Gcwernment or any State Government eJ(ceptthiOsecovered under (ii)(a)~/ow. ..

upto55

(el units of·mutual funds set up as dedicated funds for Inve5tmentin GOVElrnmentsecuritles andregulated by the Securitiesand Exchange Board of India;

Provided \hat the eXplJsureto a mutual fund shall not be more·than 5" of the total portfolio -atany~Oftime. '.. _(a) Debt securities with maturity of not less than three years tenure Is~ by Bodies Corporate upto40indudl",~ksilnd publicfinanc;iallmtltutions'; .

ProvldedtJlat at least.75" of the iiWe5tri1entin this category Ismade In l05truments havi", anInVeStmentgracleratlog'fromat least one ctedrt rating agency.

(b) Term DePo$1tReceipts Of not less than one year duratiOn iSSuedby scheduled commerdalbanks.Providedthat the SChedUledcollimerdalbankSlliust meetcoildltlOns of

(I) - c:ontlnuousprofitilbilitYfQrimrnediately p'reQ!d1I'iCthreeyears;.(ii) maintaininga-minimum capital-tofUsk W-"shted ASsets Ratio of 9";(iiI) havintnet non.performing -aSsets of not more than 2'6ofthe net advances;(Iv) havins a minimum net worthofnoHess UlanRs.200crores.

..-/ . ., .. - ',- _., - .

{c:) RUj)ee-BOndS hili1Ing an outStanding matIJl'ity 6f at least 3 yeitS Issued by Institutions of theInterna~1 ~nk for Rec:onstruc:tionand Developm,mt, InternatiOnal Finance Corporation andthe.AsIanoeve!opli'ient Bank< .:':

(iii) MOneytriarketlliStru~nts indudl"ngunits of moneYrQarketmUtUalfunds. upto 5

(Iv) Shares ofwmpaniuon Which derivatlv~are availa~le In Bombay S~ Exchange or National upto 15Stade EXChange or equity IInkedsctlemes of mutUftlfuOdSreguJatedby the Securities and~ Board oflildia.

2. - Any moneys retelVed on thetnatUrity of earlier investIDe1'lu reduced by obligatory outgoing shall be; invested Inacc:oftfance with thlSii"lVestri'iem:pattern.

'l'Govei'nm~mtsecurities' as defined irtSe.Ciion 2(b) of th~setUi1tie$ContriiCts (RfiMation) Aci;19S6.a'Seturlties' asdefinediilSe~ l(hl ofthe Sec:urjties Contrac:tS(Regulation) Act, 1956.liPublieFinandallnstitUtionf.' as specified under Section 4Aof the CompanlesActi .1956.

3. Turnover Ratio (the value of ~urttles traded in the year /ave;,qe value of the portfolio at the begtnnlng ofthe year and the end of the '/ilar) should not,exceed2.

4. If any of the Instruments mentioned above are rated', and tJtelr rating falls below investment grade asconfirmed by one credit rating agency then the option of exit can be exercised.

5. The Investment pattern may be achieved by the end of the fihaildal year. It Is expected that throughout the. year the Investments are In conformity with the 'above pattermhowever, at 00 time Investments)n any category'should exceed by more than 10% of the limit prescribed.

6. "It may be noted; however; that the investment of the Funds oh TrlISt Is the flduclaryr8ponsibllity of theTrustees and needs to be exercised with appropriate due diligEfnce. 1fherefore, as such, the trustees are solelyresponsible fqr.the ltIvestlTlentdecisions taken In accordance \Ylththep~~em of Investment spectfted above.

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(Dr.K.P;"Krishnan)

.i9lntSecretarylo the Government of India

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10314meeting orFIe -28.0J.20H

Item No 5: Review of decision on deferring furrther Investment in LICHousing finance Company in PVT. Sect~rCategory.

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1. An item to defer further investments in UCHFCl was placed and approved in 191st

meeting of CBT held on 09.12.2010 (Copy of minutes enclosedas Annexure -A) on

the recommendationof 102nd FIC held on 07/12/2010 in which it was decided to defer

further investments in the UCHfCl tin the whole issue is clarified in regard to CBI

investigation against the company for not following the prudentexposurenorm and due

diligence in extendingadvancesto real estate comoenles,

2. In response to the decision of CBT to defer further i~westmentsin the lICHFCl, a

communication was receivedfrom Secretary, GOI, Ministry of Finance, Department of

Financial Services( Copyenclosedas Annexure-B)addressedto Secretary, Ministry of

Labour, asking to take ren1edialmeasures in respect rl EPFO'sdecision to not invest

further amounts in UCHFCl,as its financial position is sound.

3. The company UCHFCl has also vide its letter dated 31/12/2010 (Copy enclosed as

Annexure - C) conveyedthe reaffirmation of the hig~ ratingAM \Stable by CRISIl

(Annexure-D) and CAREAM (Annexure-E) by CAREafter the incident of probe by

CBI against the chief executive, and has requested EPFOto reconsiderthe decision on

deferment of further investments in UCHFCl by EPFO,and to once again continue to

support their companyas being done in the past

4. ~~rr1ingly in view of the darifcations given by the Director & Chief 'Executive of

UCHfCl that their company still enjoys sound financial credentialswhich is supported

with AM ratings from CRISIl & CARE, and .communiq3tionreceived from Secretary,

financial Services, GOI to take remedial measures for resumption of investment in

UCHfCl, the matter is placed before the fIC for eonsideration on whether the

restriction should be lifted and investment resumed,•

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Proposal: The proposalas mentioned in Para 4 of the item above is placed forconsideration of the FIC for recommending to CBT to review itsdecisionon deferment of further inv~ in LICHFCLand resumeinvesbnentsin UCHFCL.

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. i I~- S rn~Xtvu ,.f1~19f CBTMeetinq {09.1.2.201 0} " . ,r

Item No.8: Deferring further rnvestmeet in UC tJousing FinanceCompany in Pvt.Sectorcategory. !

Decision: The proposal contained in Para 4 of ~ agenda to defer further

Investment in UC Housing finance Company was approved by the

Board.~. I

Item No.9: Report of the Working Group on comprehensiveamendment to the Employees'l Provident Funds &Miscellaneous Provisions Act, 1952. i

Der[~irull. The agenda item wasdeferred by the 8Qard for the next meeting.

Item ~"o.10: Relaxation in Investment Guidelirles to increase limit andexpand the basket of instruments ih Pvt. Sector

Decision: The proposal contained in the agend~ item was deferred by the

Board.

Item No. 11: Appointing Consultant for Selection of Multiple Fund_Manayen;and their Performance ~valuation

Deci~iQn: The proposal contained in the Para 4 of the agenda item was<

approved by the Board.

TheBoard also decided to constitute.~ New COmmittee for selectionof Multiple Fund Managers in consul$tion with the consultanJ: MIsCRISIL. The CST empowered the CHaIrman, CST to nominate themembers of the Committee for the sai~ purpose.

. CPFC proposed to the Olairman, qrr to nominate at least onesenior Officer of theleveJ of Additional Secretary. from Ministry ofLabour and Employment in the said committoo, as Chairman, ·inview of the importance of the work Inyolved •.

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~~}V.~~\or ~t\ .~ per the ~edia reports, the Anance andlo"OCl~~t Department of the Central ;~ of Trustees. of the Employees' Provident Fun O[9anization (EPFO) has \reoommended defen1ng of fO~ planned investments ng. to Rs. 342 crore in \UC Housing Finance Urnited (UCHFl). As par the re EPFO's cUrrent exposure InUCHFL 18 to the tune. of Rs.450 erore whlle the inves _nt·limit set by th~ EPFObased on the net worth is Re. 846 erere, .)

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2. tn thI$ oonnectlonj I'would like to point out'that· HFlis a big si%ehousingcompany next only to HDFC •..The total loan boOk elze.1s a oximatelyRs.44,OOQ croreof which- majQlity is In·retail segment· The project loan . '. see of only 11.8% whichis copsJdered quite low cOn1paredto ou.ftnance ~W'\I\t:m', Ies. The gross NPA of.project ~n Is aboUt O.08%.(,)nJY.: -As per the ftllandal resu .for the quarter ending 30thSeptember, .2010. the riel' profit of-~CHfI:. on a year on basis has Increased by37% to Ra. 234.21 (:l'Ofe.grossN.PA stood at 0.7% 8$ ag 1.28% for the previous

• Further. the financial perfOimance Qf UCHFl till No bet indicates 5:1% growthloan sanctions and 38% in ·Ioan-disburs~nt:.. _

--Recently. both CRISll and CARE'rating agendesl-m1rtnO AAAJ Pi + rating on L.ICHF=l-debt instrument. baand public deposits.

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r&affirrned U1eir highestloans. commercIal paper

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. ~\6. From the .above it may be construed that UCH L ~ one Of the major p 8)in the counb'y with ,strong ftnanclaJs. The . of EPFO to defer furfinvestment in L1CHFL Is the1efOre qUIte Incom Ie. You would appreciate tthe eBI expose Indicates alleged misdemeanOr part of individuals but ncsystemic issue affecting any part of the J sector. However, 1

announcement of the EPFOs decision to sus nvestments In lIC Houslfinance Ltc!on 9.12.2010. the stock price tantlalJy on that day. whimay possibly be due to the announcement of in the media. EarffeJ:7.12.2010. there were neWspaper; reports mentJ ng EPFOsimpendlng dec!s~,on the seme subject The stock price movement 9. 2.2010 the day the deelslIof EPFO was publlclsed. was as under.

~9.12.2010

~Rs. 894.10

HishRs. 969.00 . Rs.

.·Thus itmay be concluded 1hat the dectsion of EPtarnished the image of LlCHFL Which is reflected

. UCHFl share fell by 7% in three days after wide rmedia. . ,\

and\ its publicizingby EP~O ha .the feet that the market price artlntJ of EPFO's decision by tht

~.7. It would·have been better that before ~ a decision. EPFO hacengaged With lICHFL or consuJCed this depa 'f!'le ~nitateraldecision of EPFOhas had v.ery severe .negative fallout on the senUm of J,JeHFL's Investors .and themarket, This is especially so as UCHFl has the ba ng Of.UC which .undoubtedly Isour strongest insurance C9mpany. By .thls decls' n of ~FO, a doubt has beenunneOS$8$riJycreated In the:mlnds Of the Investors t ~ market In the light of theabove observations J wOUld' reques1:you to have .deqsion of EPFO to defer Itsfurther Investment reviewed. \

8: .: .~ere it is also ~n~nt tD~on that EP 0 ~ made a commltrrient ofma~ng tnvestme~ts to the'tune of Rs. 846 erare. . a ~d of 1hree years, out of \1

" whidt Rs. 191.60 crere was released frOm the ye 2003\to October 2008 directly,and Rs 264.20.aore .through' mutual funds and .~J:9 has been no fUrtherInvestment If.i.the gIVen eiroumstantes, that ~PF had' ~t Invested any amount \directly In UCHFL In the last two years, there was o~ for EPFO to go-ro· the \press with .itsdecision to defer furtbe1-tawestments.l couIdlhave Just decided that it II.

does not want to (nvest any-mor:e amounts In L1 HFL land kept quiet .1Jl1sdepartment Is naturally collC$Tled about· the· deetsl be~ publicized so widelywhich ha~ oreat&d a l1egatN8ifT'.pact on the.sentlme. of ~s Investors and a.fall in the price of lICHFl. sha,. Whk:h could have. avoI¥.d.

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I am sure. ~th these newfa~you will take II 'aJ ~sures in respect ofEPFO'sdeasion not to invesf..-aflY {Urther amounts Irl: CHF~" .

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Yours ·si~rely.

SM Prabhat C. ChaturvediSecretary .Mmtryof LabourShram ,Sh~ktiShawanoNew-Delhi."

.{R.Gopalan)

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Lie HOUSING FINANCE LTD.

LICHFL\FIN\EPFO

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oo..20~~~~ .. 'h~~~.~' .1\:\\ .Shri Samirendra Chatterjee, lAS,

Central Provident Fund Commissioner,Employees Provident Fund organization,Head Office , Bhavishya Nidhi Bhavan,14, Bhikaji Cama Pleee;New Delhi 110066

Dear Sir,

Re: EPFO's investment in our Company.. ,,II

Thanking You,

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Yours faithfully,

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I7~.ousing Finance Ltd I+e,.,-S- ~iDNovember29,2010

;.;:~ Mumbal \. , I

CRISIL reaffirms-ratings on LIC HOUSIN~ FINANCE LIMIT'EDi -

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•CRi5i,-, RATINGS

, -'. long-Term Bank loans Aggregating Rs.138.95 Billion \, AAA/Stabie (Reaffirmed)

Non-Convertibl,e Debentures Aggregating Rs.325.84 Billion ' AM/Stable (Reaffirmed)

Upper Tier II Bonds Aggregating Rs.16~OO Billion AAA/Stable (Reaffirmed)

Tier II Subordinated Bonds Aggregating Rs.17.50 Billion AM/Stable (Reaffirmed)

Fix~d Dt!posit PrQgramme FAAA/Stable (ReaffIrmed)

Rs.34~OOBillion Commercial Paper Programme Pl+ (Reaffirmed)

CRISILhas reaffirmed Its ratings on UC tiouslng AnanceLtd's (UC Houslng's) debt instruments and fixeddeposit programme at 'AAA/FAAA/Stable/Pl+' fonowlngthe recent Ir\IVestlgatlon proceedings initiatedagalOl?tUCHousing's chief executive. CRlSIl will continueto monitor this ~evelopment.

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The-rcltlngreaffirmation centrally factors In the continuedsupport that LIq Housing is expected to continueto receiVefrom Its largest shareholder, the ute InsuranteCorporation of IndJa(Ue; owns 36.54 per cent of,UC Housing's equity shares}. Following th~ Investigation proceedlng~, UC's chairman has publiclyannQuncedthat ue will continue to support UC Housing.ue has sUPportfalts announcement by making aspeedyIde~tlficaiion of a 'new chief executiv,e for UC-Housingand by com ' unicating to CRISIL that It willcontinueto support ue Housing. CRISIl's ratings onUC Housing have al ays factored In the ongoing andneed-basedsupport from LIC. . ' ,

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UC providessignificant origination •.operational, andmanagerial support t9 ue Housing. The two entities'atsoshareacommon brand name. Ue's commitmentthat It will not allow \its shareholdlng In UC Housingto fall below33 per cent continues to support the rating. CRlSIl expects the support from' lie in terms ofownership, common branding, and managerial Inputsto continue, and expects this support to offset theImpactof anypotentiat stress onHe Housing. '

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UC Housing'sexposur-e to the real estate developersegment (which is inn,rently rlslder as an asset,classthan individualmortgage loans)" though in~lng over the past few yea~, is currently at a manageablelevel of around11.per cent of Its. total loan book._Thegrossnon-performin~ assets (NPAs) In this segmentwere negligibleat,Q:08per cent as on October 31,2010 (overall gross NP~ stood at 0.74 percent as onSeptember30, 2~lO). Howeveri'theseasonl~of the overall portfolio bedause ofhlgh growth is yet tohappen.CRISILWill closely monitor UC H?usl~'f assetquality tlUlts portfOIiP gets seasoned.

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The ratings also refl~ LIe Housing's dive~d resourceprofile, health~capltallsatfon,and adequateeC\mlngspronte.These rating .strengths are partfally offSetby the threat to ~C Housing's market positionbeca~seof Intensecompetition inthe housing fin~nces_egment " " " , "

• • I • •. - . . . . .' ,UC Housing'scurrent liquidity is,also comfortabl(t, reflected,in unencurnberedcash and bank balancesandIrwestmentsin liquid mutual funds of around Rs.9.5 _bilJlonas'en November \29, 2010. The,mismatches in, the near-termbuckets are adequately' covered by unlJtjllsedbank lines '. For t~e half ye,a~ended September,30, ~010, the company reported a profit after ~x (PAn of Rs.4.S billion .,n a total. Income of Rs.21.1~,billion, comparedwith a PAT of Rs.-3~Obillion 'oq a total income of Rs.l~.2 \billion for the correspondingperiod of the previous year. ' " '

Outlook: Stable '." ' . ..CJU~il believesth.at u<;= ~ouslng willcontlnuetq benefit from the support i~ receives from UC, and will

. mal!ltaln Its heaJthvcepttattsetlcn anddlversifled :~rce profile., UC Hciusln~ will continue to face !ntensecompetition frQrn banks and other- leading hOUSing finance companies. The outlOOk may be revtsea to'Negatlve',if,there lsasteep r~uction In UC's:ow~lp;of"or support to.J 4C HOUSing,or if In CRISIL'soplni~n,UCs.c;:redlt risk profile deteriorates. The:QUtlookmay ~Iso be revised If there is deterioration in UC

, ,.~~:llq:~ANCE\CiuSIL~tings\201G-l·1~~ation LIe HousingFinance ... l2l3112010

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\ ~IOw;mfl Finance Ltd \ Page 2 of ~

'5 earnings due to its inability to pass on higher costs, or there \s pressure on Its capltalisationUII:\..ClU:'C of sustained aggressive' growth. \

i,About the Company i

ue Housing Is India's second-largest housing finance company, with.1S1 +arketlng units and 2 overseasrepresentative offices. lie Is the single-largest shareholder in lie HOUShi9,and owned 36.54 per cent ofthe latter's equity as on March 31, 2010. In 2009-10, lie Housing's disbu sements ag.gregated Rs.148.Sbillion, compared with Rs.67.6 bllllon·in 20.08-09. In the first half of 2010-.1 '.. the comp~ny disbursed loansworth Rs.84.9 billion, 37 per cent higher than Rs.61.9 billion In the corres ondlng penod of the previousyear.

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As on September 30, 2010; ue Housing had a T1er I capital base of Rs.37.f3 billion (Rs.32.9 billion as onMarch 31, 2010).As on September 30, 2010, lie Housing reported a Tier ~ capital adequacy ratio (CAR)and an overall CAR of 9.2 per cent and ·;1.4.i. per cent respectively of rlsl<-vtlghted assets (10.2 per centand 14 9 per cent respectively as on March 31 .2010) .. I . 1M~dla Contacts Analytical Contacts CRIS.L Rating DeskMituSamar Pawan Agrawal Tel: +~1-22-3342 3047 I 3342 3064Head, Market Development & Director - CRlSIL Ratings Emall:'! CBISILcdtingdesK@crisi/.!:J)(DCommunlcCltlons Tel: +91-22-33423301 I

CRlSILUmited Emall: oa.grawa/@alsll.comIII

Tel: ·+91-22-3342 1838 I

Email: msaIDiJI.@aJsjJ.JJ2ID Suman Chowdhury I

Head - CRlSIL RatingsTanuja Abhinandan Tel: +91-22-33423293Market Development & Emall: schowdllu[y.@a:{sll.'flmCommunicationsCRISIl UmltedTel: +91-22-3342 1818 ,

Eman:[abbinaaaaa~dsiLcOIiU 'I

Note: ..This rating ratlonale.ls transmitted to you for the sote purposeof dissemination .througtt .your newspaper!magazine I agency. The rating rationale may be used by you In full or In part without q/langlng the meaning or

'.context thereof but with due credit to C.uSIL. Jiowt!'ier, CRISIl alone has the sole right of distribution of Itsrationales for cons~deratl9n or otherwise through any media Indudlng websltes, portal~ etc. .

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CRISIL C.omplexlty Levels. are aSSigned to Various types of financial ~struments. The CRISILComplexity Levels are available on WJn9N.crisjl.gJml<:cnnplexiq-leyeIS~ Inve$torsare advised to referto the CRISIL Complexity Levels for Instruments that they· propose to Invest In. Investors can also callthe CRISIL Helpline at +91 Z2 33423047 I .•.91 22 ~3"23064 with queries ~n speclfic-instruments.

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CR1SIL is India's leading Ratings, Rf!search, Risk ;md Policy Advlsol}' company. CRlSJL kl,verages '" core strengths ofcredibility ·and analytical rlgourto deliver opinions ilnd soiuClons, that help dlents mitigate ahd manage their business andIimIndal r4ks, make markets function better. and help shape public. po/lq. For more Infom1atlo~, visit WWW.crisl'.com.. .

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Disdalmer: A CRlSIL rating reflects CRISIL'S current Opinion On tJu: Hkellhood of timely paym~t of the obJigationsl.{nder therated instrument and does not constitute an audit or the tafed en.tJtr by CRISIL CRIS1L.rat.'?9S are based· on informationprovided by the Issuer or obtained by CRISIL from souta$.it,:onsidersrel;able. c:RISIt. does :1guarantee the completenessor accuracy Dfthe information·on which the rating is based. A CRJSIL rating Is·not a recommen atlon to buy, sell, or hold thelilted Instrument; It does not comment on the marlcetprta or suitabIlity lor It~rtkular Investo • All CRlSIL ratings are undersurveIllance. RlItings are revised. as and when drcumSCIi'lOfS sowltmnt •. CR/SIL Is not re~ponslblefor any errors andespecially states that it has no. flniilnclal Ililbl/ity. whlttsoev.er fa· the· subsc;dbers / users I .tninfmltters / DIStributors. of thisproduct. CRlSIL. Ratings' rating Criteria are generallY avallil~" without charg(! to.the publ/¢ o~ the CRISIL publk web site,-.CiislI.com. For the. latest ratl(l9 Information on any Instrftm.ent o(.any company rated by C{USIL; please contact CRISIl.RATING DE.SK at CRIS!L@tjngdesk@CrlsILcoffl; or at (+9J 22) 3342 3000· .. .. l .

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November 29,2010

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.) file:I/O:\FJ;NAN'CE\CRISIL\ratings\2010-U\Ratingreaffinnation LICHollSing finance '" 1213112010·• I

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CREDI ANALYSIS s:RESEA CH LTD.

Shri.Yijay Kumar SharmaDirector"& Chief ExecutiveLie Housing Finance LimitedBombay Life Building,45/47 Veer Nariman Road,Fort, Mumbai - 400 001.

4rK Floor. GSomalya0(( Eastern ESian tEasI). bol- 400022.INDIA"i: : 675434~6 fox :(022)67543457E·mai : COI arolings.com

6.2010Confidentla I

)

iRevalidation of Outstanding Ratings . I

CARE hereby reaffirrns the existing 'CARE AAA' [Triple AJ rating to the No1 Convertible

Debentures aggregating. to Rs.18322 crore (Details of rated Non Convertible Debentfres provided

in Annexure J). It has also been dCcided to reaffirm 'CARE AAA' {Triple A] rati~1g for Tier II

Bonds of Rs.7S0crore and Upper Tier If bonds of R. I600 crore ofLlC Housing Finance Ltd.

Instruments with this rating are considered to be of the best credit quality. offering ighest saf~ty

for timely servicing of debt obligationS. Such instruments carry minimal credit risk. I

2.· Our rating symbols tor various long & medium and short-term instruments an~ explanatoryI

. -notcs thereon are given in Annexure n. I

3. A write-up on the above is proposed 10 be issued to the press shortly. 1draft of the

press release is annexed as Annexure Ill, I

. 4. CI\I~E reserves the right· to suSpend/withdraw/revise the rating assigned on thcibasis ofnew. . I

information or in the event of failure on the part of the company to fumishsu~ infom18tion.

material and clarif~ations as maybe required by CARE. CARE shill!.also ~ entitled 10

publiciSeldisseminate .suchsuspensionl withdrawal/revision in the assigned Jating in an)'

manner considered appropri~ by it, without reference to you. . I '.

S. .CARE ratings are not recommendations to buy, sell. or hold any security. I .III,III

IYows fait,fuJI)',

-11Y'+'TrIViJs)'.Ag wal)Jt.Gca M aagei •

Dear Sir.

6. If you ne~d ~y clarification. you are welcome to approach usln this regard.

Thanking you,

lA.$hvlni Pad])Sr.Manqgcr

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.00000lmcrCARE's •••tJngs arc :oplnlons.on crCdit.quaatyand lire not recommendation. to sanction. renew. disburseconcemed INInk1lId1i!IU·or.to !lIlY. sea 0",,,.8.ny seCurity. 'CARe has b<lsed ItI·raUnos on Worma(rom ~ources beUeved by It to be acCurote.ancI reliable. ·CAlte.'4foe. not, howev~r.· ~ tile aor completeness 01 any Information. Ind Is not .responsible fo, any .rror. or omissions or for tile refrom the u~.·ot sudl inlormatioli. ~ enlltleS whilse benk facilities/instruments •• ·nted by CAREcredit raCing fee, baud ·on the omou·nt .•1I!f typ.fof bent f.d~instn,"lents.· .

riel. lilt .obtained,~.,..obta·

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l03rd Meetin of Finance& Investment ommittee EPF

TABLED ITEM

DATE28.01.2011

TIME: 2:30 P.M

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Item: -Discussionon letter of Finance Ministry r arding Government

Guaranteeon investments of EPFmonies inCa ital Market.

1. An AgendaItem on 'Discussion on the letter of Mini of Finance dated 5th

July 2010 addressedto Ministry of labour regarding rdoption of the Pattern

of Investment notified by the Ministry of Finance', tas placed before the

Board in its 190th meeting held on 15.09.2010(eopyFf item along with the

Relevantportion of the Minutes of 190thCSTare encosed as Annexure - I-

II) respectivelW.

2. As desired by the CST (190th Meeting), letter was written by Secretary,

Ministryof Labourto the Secretary, Ministryof Finane, seeking Government

guaranteeon investments in the CapitalMarket.

3. In response a letter has been received from the eeretary, Ministry of

Rnance, whereby they have categorically refu d to provide any

Government-guarantee(Copy endosed asAnnexure-II ).. I

4. The EPFO'scomments on the points raised in thr letter of Secretary

(Finance)are incorporated in the draft reply preparedby EPFOon behalf of

Secretary(labour), (Copy enclosed as Annexure-IV).

The matter is placed beFore the Finance endInv. etment CommitteeFor consideration and necessary recommendation to th CBT.

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Page No

Fiie No.

Employees' Provident und Organisation,Bhavishya Nid iBhavan,14, Bhikajica a Place,New Delhi- 10066

Please find enclosed a- dra reply to D.O. letter NO.7/3/07-PR(PT) dated 10th December, 2010 from Shri R.Gopalan, Secretary,Ministry of Finance,Deparbnent of F nancial Services received throughMinistry of Labour & Employment I tter No.G-2003111/2001,SS-1I for'appropriate action.

¥~ -(S.CHATTE~EE)

Centr I Provident Fund Commissioner

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cDated: 14.01.2010

Dear

NO.7/3/07-PR(Pt.) datedPle'aserefer to your D.O.

10th December,2010 wherein proposal for providing

guarantee for investment of EPFO corpus in stock markets was·

rejected.

2. EPFO is a nisation which caters to the

SocialSecurity needs of approxima Iy 4.5 crores workers. Social

Security, as such is very wide ncept of which the old age

income security is one of the It also includes the

financial security at crucial ju during the earning phase of .

a person especially a poor who incidentally form the

major chunk of EPF subscribers. The financial contingencies

may include treatment of Iife-th

house, education of children etc.

the old-age income Security of

Fund and Employees Pension Sch

their financial needs when they

ing illness, construction of

1 thus not only caters for

workers through Provident

but also it takes care of .

in dire need of monitory help

g houseetc. It is true that

such contingencies them through Education

loan, house loans, etc. through banks and

another financial institutions. nowever, no one can be oblivious

to the fact that very few of peopleof lower strata of

society have access to such es; In the present times of

high inflation, it is even difficult eke out daily living for the

POOf, it will be hi.ghlY superfluous r them to talk of taking loan

from the bank etc. Even if.• they to get such loans, the.

cost of borrowing Is quite high may further cripple the

already inflation-hit da.i1yincome the poor workers. Since, the .

socialobligations are also to be Iy met, hence EPFgives

the facility of partial withdrawal from their Provident Fund

accountsfor certain specified purposes.Hence, the poor worker

is able to make use of his own money for certain unavoidable

socialobllqations,

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3. Moreover, even if the partial and pr -retiral wlthdrawalsare

all together stopped, then also, some amount of liquidity will

always be required to be maintained as certain percentage of

EPFsubscribers will always be attaining uperannuation age and

retiring every year. In order to settle th lr PFclaims. liquid cash

is required to be maintained at any point of time.

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4. Furtherr in the aforesaid letter, it is entioned that Trustees

are solely responsible for the investm nt decisions taken in

accordance with the pattern of investm ! nt . On one hand, it is

being stressed that the trustees have to take informed and

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prudent decision in the interest of the

hand,. EPFO is being directed to mak

markets. When the Board of Trustee

rust and on the other

investment in Capital

have taken informed

decision of not to expose the PFcorpus to vagaries. of Capital

market, it is not understood why EPFOs being forced to tread

the path, it is not willing to undertake..

5. There is no doubt that Capital marke give higher returns in

the long run but it is. accompantedWjth~higher ri~ks which the.

. Boardof Trustees feelI is not prudent to t exposed to.. .

I6. Hence, lnslstlnq on fi<;luciaryresponstblltty and due diligence

of trustees on one hand, and.giving dire ions to invest in risky

. ventures without any gua.ranteeon the ot er are contradictory to.

one another and highly unacceptable. t implies that CST is

mvestlnq funds currently in an imprudent anner.

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7. Moreover, the system of investmen in Govt. Securities and

debt instruments have worked quite sa isfactorily for EPFOfor

last 58 years and at the present junctur when the stock market

is experiencing. so much turbulence and volatility, the Board of

Trustees feels that it will be prudent to continue with the time-

tested pattern of investment.

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The CBT will continue to invest wor ers money in the most

prudent and judicious manner keeping th interest of workers in

mind.

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Yours Sincerely,

Prabhat C Chaturvedi)

Shri R. Goaplan

Secretary, Ministry of Finance

Department of Financial Services

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No.G~20031/1/2007.SS-II\ I:Governmenf of India

Ministry of labour & Emi;lo r, J.

New Defhi,To

The Central Provident Fund Commissioner,Employees Provident Fund Organisation,14. Bhikaiji Cama Place, .New Delhi.

Subject:- Forwarding of letters of Secretary(Finance)

Sir,

The undersigned is d;r~cted to forWard he~ lth copy of two d.o.letters received from Secretary, Ministry of Finance,'artment of FinancialServices, one No.7/3/07-PR(pt.) dated 10-12-2010 r arding adoption of 'investment,pattern notified by the Ministry of Finance or. EPF & ExemptFunds and another NO.S-.11011/2512010)fnsJ dated 1 :-12-2010 regarding, investment In tIC Housing Finance Limited., I' , . .2. In thi~ connection you are requested tofum; . comments of your'organisation on boththe issues! mentioned in the a ove d.o. fetters ofMinistry qf Finance to .this Ministry;immediatefy. '

Yours faithfully,Enel: As above.

0~~y(S.D. XaVier)

Ul)der Secra ry to Govt. of India

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Please refer to .vour D.O. Letter D.O. NO. 20031/1/2007-SS.II."J"h October, zoio regarding adoption 0 investment pattern

nl1lT'rrlon. by t~ Ministry of Anance for Employ Provident Fund and.pt Funds." The matter has been examl in the light of the

OI)SE~n • made 'by the MiniStry of La?<>urand F ~comments are as'. I

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It appears that the MiniStry of labour is pporting the 'liberalI~"'''''''''''' and withdrawals from the, EPF by its ployees and that isI short-term returns and J!~uidity of tlie fix income investments

a considered to be of paramount importance. is, the reason whyInn,'"I_T£::Irrn investment in ftn~nclal instruments ind ng in stock marketsis not considered appropriate by. the Ministry of bour. The fallacy in

argument ts that 'liberal advances and withd wals are in conflictthe sole objE!ct of the EPFand that Is that It s uld be used only forage income security purpose and not for m ng the needs, suchillness, education or house-building. The ,Pf, as one poUcy

is being allowed to.be used for meeti various needs likeI, education qnd house-bulldinq needs, eas this instrumentbe most appropriately used'for meeting I one objective and

is to meet the age old-age' income security of e employees, There'othe'r instruments to be used for meeting other needs, for

example, medical needs could be met by medical j surance and houseing needs or need of the educational loan 'I be satisfied by the

.'UJ ••• .::.~ building or educational loans from the nks and financials. The distortion created In not ,adhering to "one instrument-

policy objective" principle is that most Qf the f. ployees (say 750/0)EPF retire with as little as lesstIlanRs ..350001- r their accounts. The

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nistry of Labour should thus shun the fiber I a vances and withdrawalicy and allow f=PFto be used as an Inst urn nt to achieve old-age

security for employees, The nominal tu ns of, say 8.50/01 whenupled with over 8% rate of ihflation, result I to negative real returns.

. It may not be correct to say that the inv ent returns in the 'PS are "notional" while, those under the Iny ent Pattern of MinistryLabour are "reaL" It is a matter of accountl g rlndple that the entire "n9 of the EPF should be .marked-to-rnar t. EPFO is able to avoidprinciple only because the yearly inti w of contributions and

returns are more than the outflow n account of payment of 'benefits "and other: monetary pa nts. This accountIng

~~I.o. is intema4:k>nally used by all 'social uFity funds,' In case,has"to -liquidate 'its securities in the iny ent portfolio to meet

requirements of the employees and the a balance is distributed,it has to go to the market to liquidatelt:S i v nts for which the

n'\~'·VQT value becomes Important, In any case, ,i uldation of a' financialbecomes imminent when faced ith default on such

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As regards tne proposal to provide guaran Is concerned, it may "clarified that there Is no. question of Go mment providing the

c""".""' •..£:> •.••• n guarantee to any Prt>vic;lentFund, as is will create perverse " "nrt:lkn,.n,~oc and "r.ooral hazard".on the part. of th trustees in exerdsing

diligence while exerdsing judgement on lnv nt choices. It is tosuch a ~possibility, of a "moral hazard that the Ministry of

Wln~lnI"'.o. has. laid doWn very clearly In the In nt Pattern that "the11h\"~"r'I~t' ••f" of the funds of a Trust is the fiducia responsibility of the

Wv'L'•..•~ and needs to be exerdsed wJ1:happ~ prlate due diligence."a~ such, the t~stees are ,solely "res~nsibl~ for thededssons taken·· in accordance the pattern of·Government.glves", no guara"ntee of fety of return to any

fund etc. by simply dassifying the gene financial instrumentInvestment under the Investment Pattern as I .ng in a specific

mstrumeot is the fldudary "responsibility f the trustees of any "I

, IIt is felt that Government need not take reethe matter needs to be discussed by Cent

. This policy .ls not always :followed by thenistry of Labour has Introduced drastic ~ch

rse to the a.rgumentBoard ·of Trustees,

lstry of labour. Thein "the benefit

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I @. . I .. ({gstructure of Employees' Pension Scheme, 199 in 2008 without anydiscussion in the Central Board of Trustees, EPF, as that was considered

be necessary to ensure the flnancial vabili of the Scheme. TheMinistry of Labour may take a similar view on he issue of investment

keeping in mind the welfare of the organised sector andlot:'nl:!.'" 'Iy bf the "exempt fun<ds" as foUowin tfr old investment' pattern

lheMinistrY of; Labour results Into n .ativ real returns vls-a-vlsIOOS1IU" returns earned while using the nv ' ent Pattern of thelIVli •••irf-."\1 of Finance. '

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. 'In v,Jewof, the above, I &fongty ur th Mini~' of LabourtoloWIY''-!.. the po~on and take action to a, opt e ~nvestment Pattern

the Ministry of Finance urgently not only r t e EPF,but also for theFunds.' " ,

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, Prabhet c. chaturvedi(Labour)

of 'Labour and Employment••••nr.:l.1'V'I Shakti Bhavan ',

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Yours sh'lcerelYI

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(R. Gopalan)

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Item No.13: Agenda Note for amendment to he Employees' Deposit.Linked Insurance Scheme, 1976.

Decision: The proposal contained in Para14of th agenda item was approvedby the Board. It was also decidedthat essary amendments to theSchemeshall be initiated on priority.

Item No14: -Cleaning of Data - Inoperative Ac aunts

)Decision:

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Decision:

The proposal contained in para 14 of the agenda item was approvedby the Board. It was also decidedthat a equate publicity should begiven for awarenesscreation. Thed@Gisionto stop crediting interest oninoperative accounts will be implementedfrom 01.04.2011. Steps betaken to amend the scheme in the mea time as well as necessaryamendment in the ioterest proceSSingso

Discussion on the letter of Minist of -Finance dated 5th

July 2010 addressed to Ministry of Labour regardingadoptlon of the Pattern of Inves ment notified by theMinistry of Finance. .

The -CBT-members expressed severalcoMinistry of Rnanceregarding the safetywhich is held in tnJstllth~ BoarcfofTru

ems on the letter of-thesecurity_of the capital

After deliberations, it was concludedtha if the investment in thecapital market is as profitable andsecurea is made out in the letter;then there should be no difficulty for the Government to provide aguarantee on the capital investedby the T and a minimum rate- ofinterest being paid by the· EPFO.If the ovemment agrees to thisguarantee, then the matter couldbediscu in the next CBT and anappropriate decisiontaken.

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Item '15 of 190th CBT•\

190th ,CBTMeeting

Part A

A letter has been received from the Ministry of Finance as Annexure - I)

addressed to the Secretary, Ministry of labour, regarding aooeoon of the Investment

Pattern dated 2008 notified by it The points raised in the letter

1. As per Government of India

'Finance is to prescribe the Investment Pattern for •...rn'nU'IVt:>I3C' Provident Fund and

other Iil<eProvident Funds. It is thus imperative for the

the Investment pattern notified by the Ministry of finance.

2. After enactment ci the Finance Act 2006, registration with exemption (if so

required) under the EPF& MP Act 1952 has become ,rnnl.,tt::ll~nrv for all Excluded

(Provident Funds which are ~duded- because of salaries

being higher than Rs 6500/- per month) Recognized 1Jn"II.nt111':nT funds for the purpose

of recognition under the Income Tax Act 1961.

Thus such Exduded Exempt Recognized Provident Funds

Investment pattem notified by the Ministry of,' Labour (by

Jor exemption under the EPf & MP A~), whereas as per

Tax Rules 1962 suchR~nized Funds are required toof Ministry of Rnance.

Thus while majority of the recognized to follow the

investment pattern c:I Ministry of tabour, few others are fbllcJwil:lO the investment

.pattem notified by Ministry of Finance •

of registration and .,

67(2)of the Income

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3. The Pensionfund Managersunder the New Pen " n Scheme(NPS) could generate a

weighted average return of 14.82% for the ten I government employees for the. .

year 2008-09while EPFOcouldgive a return d 8. % during 2008-~ & 2009-10.

EPFO's Comments '

i. The return generated under the N Pension Scheme is based on

Net Asset Value (NAV) while the retu declared by EPFO are based

. on actual coupon received on its InViesJJnents.

are actually realized whileii.

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the returns dedared in the NPS are

subject to market conditions •.

EPFincome does not indude the a

invesbnents whereas the NAY-

components l.e, revenue and capital ap

~e NAV approach is subject to marketthe risk to subscribers'capital. Largehighly improbable to realj~e at the #ku'b •••:vI

v. Thereis no risk of capitalerosion in"the of EPF invesbnents.

iii.

iv.

• tion.

olatility thereby increasing

turn redemptions .make it

Part B: Background

4. The funds vested in the CST EPf are invested as per provisions contained in the

EPF Scheme (Para 52) framed under the EPF &. MP Act which states that the funds

shan be invested subject to such directions as the CenbaI r.nilPl"llment may give from time

to time. Accordingly,the funds are invested as per the PattErn Investment noblied by the

Ministry of Labour &; Employment from time to time. S~" as notified by the Ministry

of labour is applicable to tIie ~pJoyees' Provident Funds the EPf & MP Act 1952

. . iQcluding both the unexempted and the exempted Funds.u .

5. In the Dgltdthechanging economic.scenario, if needthe basis of the viewsa CBTEPF} makes recommendation b:t the Ministry c:J Anance to .

bring about certain m~ifjcations .in' the existing pattern to either indude, any other:.investment avenue or remove I amendany existiflg. provisions. Ministry of Anance while

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Item 15 of 190th CBT

) issuing the new pattern of investment, .which is to be follOw by Non - Governrllent

Provident funds, Superannuation Fundsand Gratuity funds, ma or may not or may be

~ ) partially, consider the recommendations made by the Ministry of La

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6. The revised Pattern of Investment notified by the Ministry f Finance isdiscussed in

the CST EPF and is recommended to the adopted or otherwise, ·the Ministry of labour.

Once lt.ls so adopted by the Minisby of labour (by way of a separa notifICation prescribing

the Pattern of Investment), it becomesapplicable to the EPF mo ies under the EPF& MP

Act 1952 (including exempted Funds). Till such time that the new attern is adopted by the.Ministry of Labour, the old pattern continuesto apply under the A

7. Presently, the pattern being· followed by the CST EPF is dated 9th July 2003.

Subsequent. to this, two notifications prescribing changes in the nt pattern have been

issued by the Ministry of finance on dates 24.01.2005 & 14.0 .2008 ~VeJy. The- - - - -

Ministry of Labour d~ded against adoption of the notification d ted 24.01.2005 (on the

basis of the vi~ws ~f CST). As regards the notification dated 14.08.

under consideration of the CBT.

8. The agenda item placed before the CST in its previous m

Pattern containing the comparative view of the extant pattern a

the said notifICation alongwith the remarksand the observations

herewith.

·the QOeproposed vide

the Office are attached

9. The agenda was placed in severalmeetings of the Finance & investment Committee

and the CBT. The relevant absbacts from the minutes of the said meetings are also placed

as Annexure -:nto the above mentiooed item.

·10. The item was placed before E)8'bExecutive Committee m 'ng beld 00 06.08.2010. .

and Executive Committeerecornmended'to place .it before FIe.

o". 11. The item was placed for consideration of FIe in its OO~ meeting held on

25.08.2010 and itobserved·as·under:i. E~ployees' represenlatives.oppOsed the iny·&OC:t-..no~tof EPFmonies in .

the Equity.

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ltem 15 of 190th

ii. Employersl representatives supported Equity investment in AM rated

PSUsto begin with - to enhance EPF They also expressed the

Hi.

urgent need for EPFOto upgrade its hIOr'hnlir;u skills for handlingsuchequity related operations. -It was decided to place these views nOI"nro the appropriate authority.

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2. This is also important that the welfare of the employees of theorganizedsector are given a better option hich is provided by thenew investment pattern notified by the ~inistry of Finance inAugust,2008.

. .3. .In fact, the investment pattern notifie by the Department of 'EconomicAffairs, Ministry of Finance is also dopted and notified bythe Department of Revenue, Ministry of An nce under the IncomeTax Rules, 1962 whichaJlows income tax benefits -(EEE) to the

I ') 1C"f)'f.l'l'Recoqnlsed Provident Funds' under the Inca e Tax Act; 1961. After;:·yr~~he ~enactment of Finance Act, 2006, regi tration with. EPFO and---·tl =t. exemption (if so desired by. the fund) . nder the Empl<?yees'

J- Provident-Fund and Miscellaneous Provision Act, 1952'(EPF & MPAct) has become mandatory for aU 'Exclude ' Recognised ProvidentFunds (Provident Funds which were exclude .because of salary "cftbe employees' being higher -than Rs:6S00 er month) under the'

,... 11 comeTax Act, 1961. Earller such 'Exclude Funds: were following~",.~ e4>-t. tn' ·lnyestment pattern of the Ministry of Fi ance. However, it is

.wf •• \ earnt that Post-2006, Mini~try otLebour is p tting a condition in thel' ",().\ Y::) . xernptlon orders that the "Exempt Funds' under the Empicy€es~'!~.'''''CJ.\rx\'o rovident Ft..i~d and ~iSCe"a~eous Previsions Act, 1952 s.ho\Jld foJ:oY\lI L' ·(~i)~ fl.••~_-1I ~ec.i' .' ·~Vn ' .

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,the investment pattern of the Ministry of Labour. T us, even whenthe Ministry of Labour continues 'to decide on a de facto basts theinvestment pattern for majority of Recocnlsed Provi ent funds, thede jure responslbtlltv of providing this guidance to the Employees:Provident funds, and other like Provident Funds is ith the Ministryof Finance. In any case, 'Exempt funds' are Iso recognizedprovident funds under the Income Act, 1961 and as per Rule 67 {2)of the income Tax Rul'es, 1962, these funds are r quired to follow

, the investment pattern of the Ministry of Finance.

4. It may be mentioned that the 'Ministry of Labour introduceddrastic chanqes in the benefit structure of the Em loyees' PensionScheme,' 19'95 in 2008 without any discussion in t e CST, EPF, asthat was necessary to ensure the financial viability of. the scheme.It .can take a similar view on the issue of Investment pattern.

5. .·It may be important to mention that although we donot havea long-term evidence of the comparative performan e ofJunds usingthe investment pattern 'of Ministry of Ftnance"Vis- - [s Ministry ofLabour, yet using the investment pattern of Minist . of Finance, thepenslon fund managers could generate .. a W ighted .averaqeinvestment return of 14.82% for the' Central Government employeesunder the new Pension System for 2008-09. On the other .hand,employees of the EPFwere given a-return of

48.5% for 2Q08-09 .and-

20"09-10, the rate which has -remained constant f r last so manyyears,' It may be explained that the investment in stock market isoptional and not obllqatorv under the investmen pattern otrtheMinistry of Finance. Further, in the interest of empl yees' welfare, asmall beginning could be. made by investing a s all part of theincremental accretions- in stock markets based 0 the risk-returnappetite of the trustees. There has been ernpl leal evidence ofexistence of equity premium ln India. However, the problem ofvolatility in asset returns on equity could be addres ed by a 1ifecycletype investment approach. . .

6. In' view of the above, I .urqe the MinistrY'o Labour to takeaction to adopt t.he investment pattern of the M nlstry of Financeurgently not only for the EPf, but also for the 'Exe pt Funds'.

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ours sincerely,

Shri P.C. Chaturvedi. Secretary (Labour)Mi~istry of labour and Employment

'. Shram Shakti Bhawan -aa&-New DeJhi -11000 i 46..