The Reserve Bank of India, Provident Fund: India

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[[File: Governors of RBI since 1991.jpg|Governors of RBI since 1991; Graphic courtesy: [http://epaperbeta.timesofindia.com/Gallery.aspx?id=20_06_2016_017_024_002&type=P&artUrl=RAJANS-REPORT-CARD-IN-GOVERNORS-CLASS-20062016017024&eid=31808 ''The Times of India'']|frame|500px]]
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[[Category:India|R]]
 
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[[Category: Economy-Industry-Resources|R]]
 
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=History=
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[https://rbi.org.in/History/Brief_History.html rbi.org]
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[[Category:Economy-Industry-Resources |P ]]
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= Employees' Provident Fund=
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==A critique==
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===As in 2020 ===
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2021%2F01%2F28&entity=Ar00202&sk=C5B28F80&mode=text  Rama Karmakar, January 28, 2021: ''The Times of India'']
  
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[[File: The EPF, As in 2020.jpg|The EPF, As in 2020 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2021%2F01%2F28&entity=Ar00202&sk=C5B28F80&mode=text  Rama Karmakar, January 28, 2021: ''The Times of India'']|frame|500px]]
  
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The Reserve Bank of India is the central bank of the country. Central banks are a relatively recent innovation and most central banks, as we know them today, were established around the early twentieth century.
 
  
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The Reserve Bank of India was set up on the basis of the recommendations of the Hilton Young Commission. The Reserve Bank of India Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank, which commenced operations on April 1, 1935.
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For a vast number of the salaried, the employee provident fund (EPF) is the only social security net they have. But the EPF rules are such that they tend to discriminate against the young and vulnerable — those who have not yet worked for five years without a break. It took a pandemic to expose how this hurts the private-sector salaried workers most when they have already been hit hard by job loss.
  
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The Bank was constituted to:
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''' HOW EPF WITHDRAWALS ARE TAXED '''
  
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* Regulate the issue of banknotes
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Withdrawal of EPF accumulated balance is not taxable if:
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An employee participating in EPF has rendered continuous service for five or more years;
  
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* Maintain reserves with a view to securing monetary stability and
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Or, if before 5 years, the employee’s service has been discontinued on grounds of ill-health, or by contraction or discontinuance of employer’s business or other causes beyond the control of the employee.
  
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* To operate the credit and currency system of the country to its advantage.
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In other circumstances, the accumulated balance withdrawn within five years of continuous service is considered as taxable income.
  
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The Bank began its operations by taking over from the Government the functions so far being performed by the Controller of Currency and from the Imperial Bank of India, the management of Government accounts and public debt. The existing currency offices at Calcutta, Bombay, Madras, Rangoon, Karachi, Lahore and Cawnpore (Kanpur) became branches of the Issue Department. Offices of the Banking Department were established in Calcutta, Bombay, Madras, Delhi and Rangoon.
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During the Covid-19 pandemic, many employees lost their jobs due to business uncertainties. The following illustration brings out the taxability of EPF withdrawal in different cases/ circumstances (all figures in Rs): As Rohan’s employment was terminated by his employer, the EPF balance withdrawn by him will be exempted from tax. As Rashi voluntarily resigned from employment after working for 2 years, her EPF balance withdrawn would be taxable. For withdrawals in excess of Rs 50,000, tax is usually deducted at source. Roshni, who did not withdraw the EPF amount, can map the accumulated balance to the new employer, in case she continues with EPF. Rahul rendered continuous service of more than five years, so his accumulated EPF would not be taxable. However, the interest that has accrued for the period of two years after cessation of employment would be taxable in his hands.
  
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Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued to act as the Central Bank for Burma till Japanese Occupation of Burma and later upto April, 1947. After the partition of India, the Reserve Bank served as the central bank of Pakistan upto June 1948 when the State Bank of Pakistan commenced operations. The Bank, which was originally set up as a shareholder's bank, was nationalised in 1949.
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''' EPF ADVANCE DURING PANDEMIC '''
  
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An interesting feature of the Reserve Bank of India was that at its very inception, the Bank was seen as playing a special role in the context of development, especially Agriculture. When India commenced its plan endeavours, the development role of the Bank came into focus, especially in the sixties when the Reserve Bank, in many ways, pioneered the concept and practise of using finance to catalyse development. The Bank was also instrumental in institutional development and helped set up insitutions like the Deposit Insurance and Credit Guarantee Corporation of India, the Unit Trust of India, the Industrial Development Bank of India, the National Bank of Agriculture and Rural Development, the Discount and Finance House of India etc. to build the financial infrastructure of the country.
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The government has allowed members of the EPF scheme to claim ‘nonrefundable advance’ from their EPF account to the extent of the basic wages and dearness allowance for three months, or up to 75% of the amount outstanding in the EPF account, whichever is less. This has been a very effective scheme and a timely intervention to address liquidity issues faced by employees during the pandemic. The FAQs released by provident fund authorities have clarified that such withdrawals will not be taxable. However, the corresponding amendment in the Income Tax Act to ensure that the non-refundable advance received is not taxable is still awaited.
  
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With liberalisation, the Bank's focus has shifted back to core central banking functions like Monetary Policy, Bank Supervision and Regulation, and Overseeing the Payments System and onto developing the financial markets.
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''' EXEMPTION DESIRABLE FOR SOCIAL SECURITY WITHDRAWALS '''
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[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=A-bank-central-to-monetary-policy-22082016013031 ''The Times of India'']
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As compared to developed countries, India does not have a strong social security net to protect workers in the event of unemployment. Globally, many countries provide unemployment insurance to employees upon satisfaction of specified conditions. For instance, in the US, those who are unemployed due to no fault of their own are eligible to claim unemployment insurance. In Canada, employment insurance provides benefits to individuals who have lost their jobs and are available for work but cannot find a job. No such social security support is available in India. And, taxation of EPF withdrawals would leave a lower amount in the hands of employees in times of need.
  
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'''Which was India's first central bank?'''
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For taxing EPF withdrawals, the limit of five years may be retained. However, exemption from tax may be considered if withdrawals are made before five years to meet certain contingencies/life goals such as purchase of residential house, marriage, education of children, medical expenses/ emergency, pandemics such as Covid-19 etc.
  
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The first central bank was the Imperial Bank of India formed in 1921 by merging the Presidency banks. The bank was further enlarged by the merger of several banks owned by princely states like Jaipur, Mysore and Patiala.
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The government is in the process of implementing the new Labour Codes, likely to be effective from April 1, 2021. One of the important aspects of the code is to provide ‘social security for all’. In keeping with this spirit, there is a need to amend the tax laws also, to no longer subject EPF withdrawals to tax.
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The writer is Tax Partner at EY India. Ankur Agrawal, senior tax professional with EY, also contributed to this article (Views expressed are personal)
  
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The Imperial Bank of India was supposed to perform three functions -commercial banking, central banking and banker of the government. By 1930, there were 1,258 banking institutions in the country registered under the Companies Act. Of these, the Imperial Bank was the most dominant.The global economy was passing through the Great Depression and this resulted in the failure of many banks in India as well. Various committees set up to study the Indian banking system recommend ed the formation of a central bank which was free from commercial banking. In most modern economies, central banks were formed largely to tackle the failure of unorganised banking by enforcing regulatory safeguards.
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[[Category:Economy-Industry-Resources|P PROVIDENT FUND: INDIA
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PROVIDENT FUND: INDIA]]
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[[Category:India|P PROVIDENT FUND: INDIA
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PROVIDENT FUND: INDIA]]
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[[Category:Pages with broken file links|PROVIDENT FUND: INDIA
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PROVIDENT FUND: INDIA]]
  
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'''When was the Reserve Bank of India formed?'''
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== 2016/ SC: employees can raise contributions without cut-off date for eligibility ==
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[http://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIM%2F2017%2F11%2F22&entity=Ar00324&sk=3FEF1339&mode=text  Prabhakar Sinha, SC ruling enables massive rise in pvt sector pensions, November 22, 2017:  ''The Times of India'']
  
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The bank was formed in 1935 by the Reserve Bank of India Act, 1934. The objectives included being the banker of the government and other banks, to maintain the exchange ratio and to regulate issue of bank notes. The overall objective of the bank was to secure monetary stability.
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[[File: The EPF scheme, the amendment of 1996 and the SC-mandated scheme.jpg|The EPF scheme, the amendment of 1996 and the SC-mandated scheme <br/> From: [http://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIM%2F2017%2F11%2F22&entity=Ar00324&sk=3FEF1339&mode=text  Prabhakar Sinha, SC ruling enables massive rise in pvt sector pensions, November 22, 2017:  ''The Times of India'']|frame|500px]]
  
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'''What are its current roles?'''
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'''See graphic:'''
  
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The bank formulates, implements and monitors India's monetary policy. It monitors and regulates the financial system through prescribing broad parameters of banking operations to ensure public confidence in the system and protect depositors' interests.The bank also manages foreign trade and monitors foreign exchange reserves. It is the only authority that has the right to issue or destroy currency .
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''The EPF scheme, the amendment of 1996 and the SC-mandated scheme''
  
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'''How is the bank governed?'''
 
  
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Like other central banks, the RBI too is an independent entity within the government.It is governed by a central board of directors appointed by the government according to the Reserve Bank of India Act. The board is appointed for four years with a governor and not more than four deputy governors as official directors. There are also 10 directors nominated by the government, two government officials and four directors -one each from local boards -who act as non-official directors.
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A Supreme Court order of October 2016 that directed the Employees’ Provident Fund Organisation (EPFO) to revise the pension of 12 petitioners under the employee pension scheme (EPS).
  
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=Reserve Bank of India Act of 1934=
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The pension scheme, which is part of EPF, has over 5 crore members. Every employee in the organised sector contributes 12% of basic salary and dearness allowance to EPF. The employer makes a matching contribution. Of the employer’s contribution, 8.33% goes to the EPS. When people withdraw their EPF after a job switch or during unemployment, the EPS is not given out. It’s payable only after superannuation.
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==What is Section 7 of the Reserve Bank of India Act of 1934==
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[[File: Sec 7 of the Reserve Bank of India Act of 1934.jpg|Sec 7 of the Reserve Bank of India Act of 1934 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F31&entity=Ar00501&sk=13998587&mode=text  Mayur Shetty, Will govt invoke Sec 7 for 1st time if RBI logjam persists?, October 31, 2018: ''The Times of India'']|frame|500px]]
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'''See graphic''':
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There is also a ceiling on EPS contributions. The current cap on salary (basic + DA) is Rs 15,000 per month so, the maximum one can contribute to the EPS is 8.33% of Rs 15,000, which is Rs 1,250 a month.
  
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''Sec 7 of the Reserve Bank of India Act of 1934''
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Between July 2001 and September 2014, the EPS salary cap was Rs 6,500 a month, which translated to a maximum contribution of Rs 541.4 a month.
  
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''SC ruling to benefit 5 crore EPFO members''
  
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==Sec 7 application considered in 2018, Oct==
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Prior to 2001, the ceiling was Rs 5,000 which yielded a maximum contribution of Rs 416.5. So how did 62-year-old Kohli get a pension of over Rs 30,000 a month with such a meagre contribution to the pension fund?
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F31&entity=Ar00501&sk=13998587&mode=text  Mayur Shetty, Will govt invoke Sec 7 for 1st time if RBI logjam persists?, October 31, 2018: ''The Times of India'']
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It took a long struggle in which he cited an important amendment to the EPS. In March 1996, the EPS Act was amended to allow members to raise pension contribution to 8.33% of full salary (basic + DA) irrespective of what the salary is. This raised the pension multiple times.
  
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''Is Said To Have Referred To The Law Recently''
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However, for a decade hardly anybody opted for higher contribution. In 2005, following media reports, including in TOI, several private EPF fund trustees and employees approached EPFO with the demand to remove ceiling on their EPS contribution and raise it to their total salary. The EPFO rejected the demand claiming that response should have come within six months of the 1996 amendment.
  
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No government has invoked Section 7 of the Reserve Bank of India Act of 1934 in the central bank’s 83-year history.
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Cases were filed against EPFO in various high courts. By 2016 all except one high court ruled against EPFO stating that the six-month deadline was arbitrary and the employees must be allowed to raise their pension contribution whenever they wish to. The case went to Supreme Court which, in two separate rulings in 2016, ruled in favour of the employees’ right to raise their contributions to their pension fund without imposing any cut-off date for eligibility.
  
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It is seen as an instrument of last resort, a direct order from the government of the day to the central bank to carry out its wishes (see graphic, ‘In Public Interest’).
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It took another year for the EPFO to implement the court order following a strong fight put up by petitioners like Kohli. Finally, from November 2017, Kohli started getting higher pension.
  
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The Modi government, despite its growing frustration with the Urjit Patel-led RBI, has resisted suggestions that it invoke Section 7 to increase liquidity, ease pressure on banks and businesses, and boost economic growth. But there are indications that via recent communications, it has initiated a consultative process with the RBI in three areas of concern and while doing so, has mentioned Section 7 without actually invoking it.
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To raise his monthly pension from Rs 2,372 to Rs 30,592, Kohli had to pay Rs 15.37 lakh as the difference between EPS contribution he had made while in service and the contribution he would have made if he was allowed to raise it to his full salary. But he also got Rs 13.23 lakh as arrears for the higher pension that he was entitled to for four years spent in retirement before November 2017. So, by paying Rs 2.14 lakh
  
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additionally, Kohli was able to raise his lifelong pension by nearly 13 times. In case he passes away before his wife, she will get 50% of Kohli’s last drawn pension till she is alive.
  
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'''Was fear of Section 7 behind RBI dy guv’s attack on govt?'''
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Are all 5 crore members of EPFO now eligible for higher pension if they opt to raise their EPS contribution? Yes, all those who joined EPFO before September 1, 2014 — the date on which the EPS imposed the Rs 15,000 salary cap — can contribute on their full salary to EPS. They can submit applications to their company and the EPFO and get up to half of their last average monthly salary as pension. Those who joined EPFO after September 1, 2014 and have a salary above Rs 15,000 are not eligible for pension while those starting with salaries lower than Rs 15,000 can contribute to EPS but the cap of Rs 15,000 will kick in when their salary rises.
  
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The government is learned to have recently initiated a consultative process with the RBI in three areas of concern – power sector loans, ‘prompt corrective action’ (PCA), and special dispensation for micro-small and medium enterprises (MSMEs) – and while doing so, mentioned Section 7, without actually invoking it. The Section says, “The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.”
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EPFO is also discriminating against employees who are members of privately-managed EPF trusts (nearly 80 lakh), officially called Exempt Establishments and those who directly contribute to the government-run trust (4.25 crore) called Un-exempt Trusts.
  
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The government’s move is significant as such a consultative process could potentially lead to the government issuing directions should the logjam persist. The issue of invoking Section 7 first came up during a hearing before the Allahabad high court in a case filed by the Independent Power Producers challenging the RBI’s February 12 circular which did away with all restructuring schemes for loans in default. After the counsel for RBI pointed out that legally the government could issue directions to the central bank, the court in its ruling in August said such a move could be considered.
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Central provident fund commissioner V P Joy said, “EPS will not be able to give pension to those members whose contributions on higher salary have not been received by EPFO.” The EPFO is denying employees of exempt companies higher pension on the grounds that only 8.33% of up to Rs 15,000 and not their entire PF contribution goes to EPS.
  
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Historically, whenever governors have spoken about the independence of the central bank, they have never failed to point out that Section 7 has never been used.
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However, two of the 12 petitioners who went to court were from the exempt category. So, a precedent has been set. It’s likely that members of private trusts or the trusts themselves will go to the court to settle the issue. The EPFO’s board of trustees is also likely to discuss the move to bar exempt EPF trusts.
  
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A senior official in the government said there has so far been no move to invoke Section 7. Another person, when asked, said, “Communication between the government and the central bank is sacrosanct and cannot be disclosed.”
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''Those who joined EPFO before September 1, 2014 can contribute on their full salary to EPS''
  
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There is some speculation that it was the government’s mention of section 7 that was the trigger for deputy governor Viral Acharya’s outburst against the government last Friday. While he did not make any reference to the Section, he did speak about how the government could undermine the independence of the central bank by ‘blocking or opposing rule-based central banking policies and favouring instead discretionary or joint decisionmaking with direct government interventions’.
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==Amnesty scheme, 2017==
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[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=India-Inc-can-enrol-employees-under-EPF-amnesty-03012017020057  Lubna Kably, India Inc can enrol employees under EPF amnesty scheme, Jan 3, 2017: The Times of India]
  
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The government wants norms for non-performing assets in the power sector – which currently require companies to be referred to bankruptcy courts -- to be relaxed. Once admitted, the companies have to be either sold or liquidated.
 
  
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Its concern about 'prompt corrective action' is that the classification of PCA has placed lending and expansion curbs on 11 public sector and one private bank, which it believes is choking fund flows to several sectors. The government has also been worried about the fate of MSMEs, and is keen that the definition of bad loans be softened.
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'''Cos Have To Pay Only Rs 1 Damages For Each Year Of Default'''
  
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A broader concern is about the liquidity situation which has taken a turn for the worse after a series of defaults by IL&FS in September. The defaults have had a cascading impact — MFs that had invested in IL&FS debt were hit, corporates who had put shortterm funds in MFs turned cautious, and the funds themselves turned cautious about putting money in financial companies.
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Companies which have not enrolled their employees as members under the Employee Provident Fund (EPF) scheme will now get a chance to do so, against payment of a minimal damage fee of Re 1per year of default.
  
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=Central board of directors=
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Additionally , if the employee wasn't enrolled earlier and hisher share of contribution was not deducted from salary , the employer company had to pay this sum also in addition to the past defaults of its own contribution. Now under the amnesty scheme, only the employer's contribution has to be deposited.
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==The Central Board==
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The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.
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• Appointed/nominated for a period of four years
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The objective of the amnesty is to ensure enrolment of employees and spread the benefit of the EPF scheme.Companies having 20 or more employees are required to mandatorily enrol those employees under the EPF scheme who have a salary of up to Rs 15,000 per month.The EPF scheme is optional for those drawing a higher salary . However, once an employee opts for the scheme, he or she cannot opt out.
  
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Constitution:
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Both the employer and employee are required to contribute 12% per month towards EPF against the employee's basic salary plus dearness allowance. However, under the amnesty , interest at the rate of 12% on the amount due for delayed deposit of the contribution will be payable for the period of delay .This amnesty scheme, which comes into force from January 1, is open until March-end.“The main purpose of the amnesty is to expand coverage of the EPF scheme,“ said a government official.
  
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o Official Directors
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Arrears in payment of EPF dues is rampant. More than a lakh employers had not deposited PF contributions and the arrears outstanding as of March 31, 2015 was nearly Rs 3,000 crore. “More damaging is that there is an equally large number of companies (especially micro, small & medium enterprises, or MSMs), say in the garment or auto ancillary sector, who do not enrol their employees at all,“ adds the government official.
  
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♣ Full-time : Governor and not more than four Deputy Governors
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Sonu Iyer, partner and leader people advisory services at EY India, explains, “Companies that had not enrolled employees under the EPF scheme for the period beginning April 1, 2009 to December 31, 2016 can take advantage of the amnesty scheme by making a declaration to the regional employee provident fund office.“
  
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o Non-Official Directors
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“The employer will be required to deposit the required sum, which denotes its share of contribution, employee's share of contribution only if deducted from employee's salary but not deposited, interest and a nominal damage charge within 15 days of making the declaration.The biggest largesse under the amnesty is that the company doesn't have to make good the share of the employee's contribution,“ adds Iyer.
  
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♣ Nominated by Government: ten Directors from various fields and two government Official
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After depositing the sums, adetailed return has to be filed with the Regional Provident Fund Commissioner. Employers are eligible to participate in the amnesty only if proceedings under section 7A (inquiries) have not already commenced against them.
  
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♣ Others: four Directors - one each from four local boards
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However, it is not clear whether the amnesty scheme will cover cases where employees had been enrolled in the EPF scheme but where there was a shortfall in depositing contributions.
  
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Functions : General superintendence and direction of the Bank's affairs
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== EPFO to settle death claims within 7 days==
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[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=EPFO-to-settle-death-claims-within-7-days-02112016009059  EPFO to settle death claims within 7 days, Nov 02 2016 : The Times of India]
  
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===The Board, as in 2018===
 
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[[File: The RBI’s Central board of directors, as in 2018.jpg|The RBI’s Central board of directors, as in 2018. <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F12%2F11&entity=Ar00314&sk=1E299772&mode=text  Sidhartha, December 11, 2018: ''The Times of India'']|frame|500px]]
 
  
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'''See graphic''':
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Employees' Provident Fund Organisation (EPFO) issued guidelines in Nov 2019 to its field offices to settle death claims in seven days and retirement cases before a worker superannuates from the job, a move which comes days after PM Narendra Modi slammed the labour ministry for the provident fund manager's poor service.
  
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''The RBI’s Central board of directors, as in 2018''
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The central provident fund commissioner informed labour minister Bandaru Dattatreya that on the PM's directions, EPFO had issued guidelines to field offices to take “proactive action to settle death claims within seven days and reti rement cases on or before the day of retirement,“ the ministry said.
  
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==Local Boards==
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==EPFO coverage for Indians working abroad, 2017==
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• One each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi
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[https://timesofindia.indiatimes.com/india/no-technical-education-via-correspondence-courses-rules-supreme-court/articleshow/61479624.cms  Amit Anand Choudhary, SC cancels engineering degrees given by deemed universities through correspondence course, Nov 3, 2017: The Times of India]
  
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Membership:
 
  
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• consist of five members each
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'''HIGHLIGHTS'''
  
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• appointed by the Central Government
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The apex court restrained educational institutions from providing courses in subjects like engineering, in the distance education mode
  
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• for a term of four years
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With its ruling, the SC affirmed the findings of the Punjab and Haryana high court on the issue
  
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Functions : To advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time.
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Also with its ruling, the SC set aside a verdict by the Odisha high court, which allowed technical education by correspondence
  
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==Why RBI is not comfortable with active boards==
 
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F06&entity=Ar02101&sk=3514EE46&mode=text  Mayur Shetty, Why RBI is not comfortable with a more active board, November 6, 2018: ''The Times of India'']
 
  
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[[File: Industrialists on RBI Board.jpg|Industrialists on RBI Board <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F06&entity=Ar02101&sk=3514EE46&mode=text  Mayur Shetty, Why RBI is not comfortable with a more active board, November 6, 2018: ''The Times of India'']|frame|500px]]
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Indians working abroad can now exempt themselves from their host country's social security scheme and get covered by retirement fund body EPFO, Central Provident Fund Commissioner (CPFC) V P Joy said.
  
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''Bizmen In Rule-Debating Role Raise Conflict Of Interest Issue''
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An online facility to avail the benefit has been made functional, he said at a national seminar on 'Fraud Risk Management-The New Initiatives' here.
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The scheme allows Indian employees the option of not being part of their host country's social security scheme and saves employers from double social security contributions.
  
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An active board seeking a say in bank regulation has thrown up questions about conflict of interest, given the presence of industrialists on the board of the Reserve Bank of India (RBI).
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The Employees' Provident Fund Organisation, which manages the money in employees provident fund accounts, has entered into an agreement with 18 countries.
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"We have made the whole process employee friendly. Employees going abroad to work can get a certificate of coverage (CoC). They can apply for the CoC online and can get it too," he told.
  
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Traditionally, the RBI board had a strong presence of eminent industrialists like Ratan Tata, N R Narayana Murthy and Azim Premji. It has also included chiefs of highly indebted groups like K P Singh of DLF and G M Rao of the GMR Group. However, there was never any conflict of interest as the minutiae of bank regulation or monetary policy never came up to the board. That’s because, until now, the RBI board only gave a broad direction that the central bank should take.
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Joy said there is a simple one-page application form available on the EPFO's website for the purpose.
  
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But in the October 23 board meeting, some directors are understood to have turned vocal on a few RBI regulations. According to a senior former central banker, there would be conflict of interest if these businessmen had advance information of RBI’s regulations. He was reacting to reports that some directors wanted the RBI central board to play a more active role and deliberate on regulations. There is talk of the board wanting to push through five decisions, which includes issues such as regulatory forbearance and allowing weak banks to lend, in the forthcoming RBI board meet on November 19.
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"The scheme is of great help for Indian workers going overseas for a limited period of time. The biggest benefit they get from opting for the CoC is that their money is not blocked for a long time in the host country," he said, explaining the benefits of the scheme.
  
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Sources close to the central bank also point out that, unlike boards constituted under The Companies Act, the RBI Act 1934 grants the governor with powers that are concurrent with the board. They refer to clause 3 of the hotly debated Section 7 of the RBI Act. While the first clause confers powers on the government to give directions to the RBI, the third part indicates that the governor shares power.
+
India has operational social security agreements with Belgium, Germany, Switzerland, France, Denmark, Republic of Korea, Grand Duchy of Luxembourg, Netherlands, Hungary, Finland, Sweden, Czech Republic, Norway, Austria, Canada, Australia, Japan and Portugal.
  
−
This clause 3 states, “Save as otherwise provided in regulations made by the central board, the governor and in his absence the deputy governor nominated by him in this behalf, shall also have powers of general superintendence and direction of the affairs and the business of the bank, and may exercise all powers and do all acts and things which may be exercised or done by the bank.” A source said, “The choice of the words ‘shall also have powers’ indicates that these are concurrent with the board.”
+
EPFO is one of the largest social security providers in the world, covering 9.26 lakh establishments with more than 4.5 crore members. It provides pension to 60.32 lakh pensioners every month.
  
−
According to sources, the powers of the governor are reiterated in the Reserve Bank of India, General Regulations, 1949, which also addresses the issue of conflict of interest between board decisions and individual interests of directors. “You can imagine what would happen if an issue like the February 12 circular on recognition of non-performing assets came up to a board that included owners of highly indebted companies,” a source said.
+
==Interest rates==
 +
===Dec 2016: cut to 8.65%===
 +
[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=EPFO-cuts-interest-rate-to-865-20122016013009 ''The Times of India''], Dec 20 2016
  
−
=How other central banks function=
+
'''EPFO cuts interest rate to 8.65%'''
−
[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F30&entity=Ar02204&sk=41DBD133&mode=text  Source: Central bank websites, agencies, WSJ, How other central banks function, October 30, 2018: ''The Times of India'']
+
[[File: Employees Provident Fund, interest rates, 2010-16.jpg|Employees Provident Fund, interest rates, 2010-16; Graphic courtesy: [http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=EPFO-cuts-interest-rate-to-865-20122016013009 ''The Times of India''], Dec 20 2016|frame|500px]]
  
−
[[File: The US government’s frictions with its central bank under President Trump.jpg|The US government’s frictions with its central bank under President Trump <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F30&entity=Ar02204&sk=41DBD133&mode=text  Source: Central bank websites, agencies, WSJ, How other central banks function, October 30, 2018: ''The Times of India'']|frame|500px]]
 
  
 +
The Employees Provident Fund Organisation (EPFO) recommended a minor reduction in interest rate to 8.65% for the financial year 2016-17 compared to 8.8% in 2015-16 but it still remains the best investment bet given that there is no cap on how much you set aside and the entire corpus remains tax free.
  
−
'''The US Federal Reserve''': Like other central banks, the Fed is an independent government agency. It is accountable to the public and the US Congress. Members of the board of governors are appointed for staggered 14-year terms and the board chair is appointed for a four-year term. Elected officials and members of the administration are not allowed to serve on the board. The Fed does not receive funding through the congressional budgetary process. The financial statements of the Federal Reserve Banks and the board of governors are audited annually by an independent, outside auditor.
+
The reduction in interest rate to a four-year low is in line with the falling regime although bank fixed deposit rates have seen a sharper decline due to demonetisation of Rs 500 and Rs 1,000 notes. State Bank of India, for instance, has lowered fixed deposit rates by 15 basis points (100 basis points equal one percentage point), while on deposits of over Rs 1 crore (known as bulk deposits) rates have been slashed by up to 190 basis points. In any case, with the RBI singalling a shift towards a low rate regime, the government was forced to pare returns on small savings schemes.
  
 +
Trade unions were demanding that EPFO central board headed by labour minister Bandaru Dattatreya retain the rates at least year's level, something that did not appear feasible given the retirement agency's projections. At 8.8%, EPFO would have faced a deficit of Rs 384 crore, while at 8.65% it will have a surplus of Rs 296 crore.
  
−
'''The Bank of England (BoE)''': The BoE is owned by the UK government. It has specific statutory responsibilities for setting policy rates, carried out within a framework set by government but free from day-to-day political influence. Parliament gives specific goals and responsibilities. The government sets the target — which is 2%. A panel meets to agree interest rate decisions eight times a year. There are other panels on other issues, which ensures that the financial system is working properly to serve UK households and businesses. The BoE is answerable to both parliament and the public.
+
“The decision was arrived at after detailed consultations with all stakeholders. With consensus we have taken this decision,“ Dattatreya said in Bengaluru after the meeting.Interest income from PF investments for 2016-17 has been estimated mainly on the basis of interest income received or receivable in this financial year, including surplus of Rs 410 crore from previous year, an official said.
  
 +
“In 2015, the interest rate decided was at 8.8%. At that time, along with the income of EPFO, the surplus from the previous year was Rs 1,600 crore. This year, along with the income, the surplus available is Rs 410 crore,“ Central Provident Fund Commissioner V P Joy said.
  
−
'''European Central Bank (ECB)''': It manages the euro and implements monetary and economic policy for the EU. Probably the most independent of central banks, the ECB charter prevents it from backing any government. However, it is criticised as being non-independent because it is at the mercy of the governments of Europe’s creditor countries.
+
The recommendation of the EPFO board needs to be ratified by the finance ministry , which notifies the rates. Last year, the finance ministry had suggested a reduction but was forced to go with the board's decision after public uproar.
  
 +
===Erstwhile employees must pay tax on interest===
 +
[https://timesofindia.indiatimes.com/business/india-business/quit-or-axed-as-employee-pay-tax-on-epf-interest/articleshow/61666067.cms  November 16, 2017:  ''The Times of India'']
  
−
'''Bank of Japan''': It has a legal mandate to maintain price stability. The government is not allowed to sack the central bank governor or members of the board but parliamentarians have the right to appoint them. Bank regulation is done by the Financial Services Agency.
 
−
 
−
 
−
'''People’s Bank of China''': The Chinese central bank is subservient to the communist party and its national objectives. It is responsible for mainlining growth, price stability, currency stability and health of financial sector.
 
−
 
−
 
−
'''Central Bank of Argentina''': RBI deputy governor Viral Acharya used the example of the constitutional crisis in Argentina. The Cristina Fernandez-led government in 2010 attempted to raid the central bank’s reserves, resulting in bond yields shooting up and foreign investors exiting.
 
−
 
−
 
−
'''Turkey Central Bank''': The sharp depreciation in emerging market currencies was seen to have been triggered by the fall in the Turkish lira. The collapse of the lira has been attributed to Turkish president Recep Tayyip Erdogan taking control of Central Bank of the Republic of Turkey and preventing it from raising rates.
 
−
 
−
=The post of Governor=
 
−
[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=No-age-cap-fixed-rules-for-RBI-top-20062016017020 ''The Times of India''], June 20, 2016
 
−
 
−
 
−
'''Who can be an RBI governor?'''
 
−
 
−
Unlike the appointment of fo ur deputy governors, there are no fixed rules. But most RBI governors have been civil servants (11), followed by economists (five). There has also been one banker, an insurance company executive and one RBI employee who have gone on to be the governor.
 
−
 
−
'''How are candidates selected?'''
 
−
 
−
In the past, candidates were shortlisted by the government, and the Prime Minister appointed the governor in consultation with the finance mi nister. On some oc casions, some of the candidates we re called for an in LEARNING formal interaction WITH THE TIMES with the finance mi nister (D Subbarao was appointed through this route) although the final decision was taken by the PM. Now, the government has tasked a committee headed by the Cabinet secretary to shortlist candidates and the final decision will be taken by PM Narendra Modi.
 
−
 
−
'''Is there an age cap or are some qualifications stipulated?'''
 
−
 
−
No, there is neither an age restriction nor qualifications are specified in the law. Governments have opted for those with understanding of overall economy , the financial sector as well as those familiar with th functioning of the government
 
−
 
−
'''What is the RBI governor' tenure?'''
 
−
 
−
The RBI Act allows the government to specify the term but the ? tenure cannot exceed five years, with a possibility of reappointe ment. In recent years, only S Venkitaramanan, who spent two years as RBI governor, has had a shorter stint than Raghus ram Rajan.
 
−
 
−
=Selection of Governor, Dy. Governor=
 
−
[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=In-a-first-panel-to-list-RBI-guv-11062016001061 The Times of India], Jun 11 2016
 
−
 
−
Rajeev Deshpande
 
−
 
−
In a break from tradition, the government has tasked a selection committee headed by cabinet secretary P K Sinha with shortlisting candidates for Reserve Bank of India governor -a decision that was taken earlier by the Prime Minister in consultation with the finance minister.
 
−
In the past, chiefs of other regulatory bodies -including insurance, pension and Sebi -have been shortlisted by search committees. But this will be the first time the RBI governor will be appointed similar ly, signalling a major shift in government stance and ending the special treatment given to central bank chiefs. The decision to route the RBI governor's appointment through the financial sector regulatory appointment search committee (FSRASC) seems intended to cool speculation over Raghuram Rajan being considered for a second term.
 
−
 
−
The FSRASC, set up in 2015, had interviewed candidates for Sebi chief. In February 2016, the government ignored its recommendation and reappointed U K Sinha for a year. A part from the cabinet secretary, the committe comprises additional principal secretary to PM P K Mishra, who is a permanent government nominee, and three outside experts -Rajiv Kumar of Centre for Policy Research, Manoj Panda of the Institute of Economic Growth and Bimal N Patel from Gujarat National Law University. A finance ministry representative will be a special invitee. The panel's recommendation will be sent to the appointments committee of cabinet headed by the PM, which will decide on the governor.
 
−
 
−
Going by the current thinking in official circles, a second term for Rajan could well be on the cards despite occasional reports that put him at cross-purposes with the government over issues like rate cuts or `Make in India'. At the same time, the government does not seem keen to imbue the appointment with a greater profile of attention. The committee route would be in sync with PM Narendra Modi's remark that the appointment is an “administrative decision“ that will be taken closer to September when Rajan's term ends.
 
−
 
−
The committee's recomendation for RBI deputy governor was a break from past practice as previously, the head of the regulatory body presided over the selection committee. This time around, the RBI governor was a member of the FSRASC.
 
−
 
−
The process of making top-level appointments to regulatory bodies has been problematic, with the choices often being seen to be politically influenced. Even with the committee-bound process, the choice for sensitive posts will no doubt be vetted by the political authority. But the decision to make FSRASC the recommending body that could well put up a single name instead of a short list for a regulator is aimed at reducing discretion and putting all such bodies on a par.
 
−
 
−
=Salary and perquisites of RBI governors=
 
−
==2016: Urjit Patel’s package==
 
−
[http://timesofindia.indiatimes.com/business/india-business/RBI-governor-Urjit-Patel-gets-Rs-2-lakh-a-month-pay-no-support-staff-at-home/articleshow/55788608.cms  December 4, 2016: The Times of India]
 
−
 
−
''' ''RBI governor Urjit Patel gets Rs 2 lakh a month pay, no support staff at home'' '''
 
  
 
'''HIGHLIGHTS'''
 
'''HIGHLIGHTS'''
  
−
RBI governor Urjit Patel gets a little over Rs 2 lakh as salary
+
According to a notification issued, when an employee resigns from his job, his EPF account continues to be "operative" and earns an interest until he applies for withdrawal.
  
−
RBI governor Urjit Patel gets a little over Rs 2 lakh as salary and has not been provided with any support staff at his residence, the central bank has said.
+
On the other hand, if an employee retires after 55 years of age, then post three years from the date of retirement, his EPF account is treated as "inoperative" and does not earn any interest.
  
−
Patel, who took over as RBI Governor in September+ , is presently in possession of the bank's flat (Deputy Governor's flat) in Mumbai, it said. "No support staff has been provided to the present Governor, Urjit Patel at his residence. Two cars and two drivers have been provided to the present Governor," RBI said in reply to an RTI query.
+
Tax laws provide that interest credited to an employee provident fund (EPF) account after an individual ceases to be in employment+ is taxable in his hands in the year of credit.
  
−
The bank was asked to provide details of remuneration given to former RBI governor Raghuram Rajan+ and incumbent Patel.
+
In its order, the Bengaluru bench of the Income-Tax Appellate Tribunal (ITAT) also upheld this I-T provision while adjudicating the matter of a retired employee+ .
−
For the month of October — the first full month Patel was in office as Governor — Patel got Rs 2.09 lakh as his salary, the same amount drawn by Rajan as his August's salary. Rajan demitted office on September 4, and was given Rs 27,933 as remuneration for four days.
+
Post-employment, whether on account of termination, resignation or retirement, several employees continue to maintain their EPF accounts and earn interest on the same. Unfortunately, they are usually not aware of the tax implications on the interest accretion in the fund after termination of employment," says Amarpal Chadha, partner and India mobility leader at EY India. Investment consultants point out that even in the case heard by ITAT, the taxpayer had mistakenly thought that the interest which had accrued to his EPF account post his retirement was not taxable.
  
−
Rajan assumed the charge of RBI Governor from September 5, 2013 at a monthly salary of Rs 1.69 lakh. His salary was revised to Rs 1.78 lakh and Rs 1.87 lakh respectively during 2014 and March 2015. His salary was hiked to Rs 2.09 lakh from Rs 2.04 lakh in January 2016, the RTI reply said.
+
This ITAT ruling is pertinent not only for retired employees, but also those who have quit employment for various reasons, say, to be an entrepreneur or a homemaker, and have continued to retain a balance in their EPF accounts.
  
−
Rajan was provided with three cars and four drivers. "One caretaker and nine maintenance attendants were posted as supporting staff in the bungalow provided by the bank to the former Governor Raghuram Rajan at Mumbai," RBI said.
+
According to a notification issued last November, when an employee resigns from his job or his services are terminated, his EPF account continues to be "operative" and earns an interest until he applies for withdrawal of the accumulated balance or takes up another job and transfers the balance. On the other hand, interest accrual norms are different for a retired employee. If an employee retires after 55 years of age and does not apply for withdrawal from his EPF account or transfer of the balance, then post three years from the date of retirement, his EPF account is treated as "inoperative" and does not earn any interest.
  
−
The Centre has recently declined to share details on appointment of Patel and other candidates shortlisted for the top post in the central bank saying these are "cabinet papers" and cannot be made public. Patel was on August 20 named as RBI's Governor to succeed Rajan.
+
The applicable rate of interest is announced each year. For the recently concluded financial year 2016-17, the interest rate was 8.65% and rates for the current financial year are expected to be announced shortly. In the recent case, the man had retired from a prominent Bengaluru-headquartered software company after 26 years of service, on April 1, 2002, and the total amount in his EPF account then was Rs 37.93 lakh.
 +
Nine years later, on April 11, 2011, he withdrew the grown sum of Rs 82 lakh from his EPF account. This amount included interest of Rs 44.07 lakh that had accrued post his retirement till the date of withdrawal.
  
−
==2017, pay hike: Rs 2.5 lakh/month==
+
The retired employee did not offer this interest amount to tax, as he viewed it would be exempt under Section 10 (12) of the I-T Act. During assessment proceedings for financial year 2011-12, the I-T officer sought to levy tax on this amount and the litigation finally reached ITAT's doors.
−
[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=RBI-governors-pay-hiked-to-Rs-25L-per-03042017008029  RBI governor's pay hiked to Rs 2.5L per mth, April 3, 2017: The Times of India]
+
  
 +
Based on a reading of Section 10(12) and also the definition of "accumulated balance", the ITAT held: "The exemption is limited to the accumulated balance due and payable to an employee up to the date of his retirement or end of his employment."
  
−
RBI governor Urjit Patel and his deputies have got a big pay hike with the government more than doubling their basic salary to Rs 2.5 lakh and Rs 2.25 lakh per month, respectively .
+
ITAT pointed out that the term "accumulated balance due to an employee" is defined as the balance standing to his credit, or such portion of it as may be claimed by the concerned employee under the regulations of the fund "on the day he ceases to be an employee".
−
The “basic pay of the governor and deputy governors“ have been revised retrospectively with effect from January 1, 2016 and marks a huge jump from Rs 90,000 basic pay so far drawn by the Governor and Rs 80,000 for his deputies. Still, their salaries are much lower than the top executives of various banks regulated by the RBI.The RBI, however, did not disclose the new gross pay for Patel and his deputies following the revision in basic pay.
+
  
−
=Governors of the Reserve Bank of India=
+
Thus, the ITAT agreed that the interest earned postretirement was taxable in the hands of the retired employee. However, it added that the aggregate interest of Rs 44.07 lakh should be taxable in the hands of the retired employee, in the respective financial years in which the interest income actually arose.
−
==1935- 2013: complete list==
+
−
[http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=TOINEW&BaseHref=CAP/2013/08/07&PageLabel=22&ForceGif=true&EntityId=Ar02206&ViewMode=HTML The Times of India] 2013/08/07
+
  
−
[[File: rbiGova.png||frame|left|500px]]
+
Chadha says, "Under the tax laws, the accumulated balance, as it stands on the date of cessation of employment, is considered as an exempt income (subject to satisfaction of certain conditions). Any accreditation in the EPF account after cessation of employment would be taxable income. ITAT, in its recent decision, has also held likewise. Therefore, it is important for employees to consider this aspect while making a decision on retaining their EPF account once their employment ceases."
−
[[File: rbiGovb.png||frame|500px]]
+
−
<br/>
+
  
−
[[File: Governors of RBI since 1935.jpg|Governors of RBI since 1935; Graphic courtesy: [http://epaperbeta.timesofindia.com/Gallery.aspx?id=21_08_2016_017_017_001&type=P&artUrl=GOVERNORS-IN-LIBERALIZED-INDIA-21082016017017&eid=31808 ''The Times of India''], August 21, 2016|frame|500px]]  
+
==Rules==
 +
===PF a/c to be transferred automatically on change of employment===
 +
[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=PF-acs-to-be-automatically-transferred-on-job-11082017009021  Mahendra Singh, PF a|cs to be automatically transferred on job switch, August 11, 2017: The Times of India]
  
−
[[File: Interest rates, inflation and GDP growth during the tenures of RBI Governors, 1990-April 2016.jpg| Interest rates, inflation and GDP growth during the tenures of RBI Governors, 1990-April 2016; Graphic courtesy: [http://epaperbeta.timesofindia.com/Gallery.aspx?id=16_04_2016_021_021_010&type=P&artUrl=Rate-cut-depends-on-raindrops-Rajan-16042016021021&eid=31808 ''The Times of India''], April 16, 2016|frame|500px]]
 
  
−
[[File: Rates during the regime of RBI governor Mr. Raghuram Rajan, September 2013-September 2016.jpg|Rates during the regime of RBI governor Mr. Raghuram Rajan, September 2013-September 2016; Graphic courtesy: [http://epaperbeta.timesofindia.com/Gallery.aspx?id=10_08_2016_027_050_009&type=P&artUrl=Rates-unchanged-but-Rajans-cash-promise-trims-yields-10082016027050&eid=31808 ''The Times of India''], August 10, 2016|frame|500px]]
+
From next month, your PF account will be transferred automatically when you change your job, chief provident fund commissioner V P Joy has said.
 +
Joy, who is pushing a slew of initiatives in the Employees' Provident Fund Organisation (EPFO) to make it more worker-friendly , said premature closure of accounts was one of their main challenges, and they were trying to address it by improving services.
  
−
== Duvvuri Subbarao: 2008-2013==
+
“Whenever there is change of job, a lot of accounts are closed; then they (the employees) restart their account later on,“ he added.
−
Subbarao, man who fell into cauldron of woes
+
−
+
−
Surojit Gupta | TNN
+
  
−
[http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=TOINEW&BaseHref=CAP/2013/08/07&PageLabel=22&EntityId=Ar02205&ViewMode=HTML The Times of India] 2013/08/07
+
“Now we have made Aadhaar compulsory for enrolment. We don't want accounts to be closed. The PF account is the permanent account.The worker can retain the same account for social security,“ Joy added.
  
−
New Delhi: For Duvvuri Subbarao it was baptism by fire when he took over the reins of the Reserve Bank of India nearly five years ago.  
+
“We are trying to ensure transfer of money if one changes jobs, without any application, in three days. In future, if one has an Aadhaar ID and has verified the ID, then the account will be transferred without any application if the worker goes anywhere in the country. This system will be in place very soon,“ he added.
  
−
As soon as he stepped into the corner office at the central bank headquarters in Mumbai’s Mint Road, a tsunami struck the global financial system. The force of the 2008 global financial meltdown meant that RBI had to call on all its resources to shield the economy from being brutalized.  
+
The EPFO has also stepped up efforts to expand coverage, and initial results have been positive. “During the campaign from January to June, more than one crore workers were enrolled. Now, we are trying to retain them by improving services,“ Joy said.
  
−
Subbarao, a mild-mannered former civil servant, remained unfazed. With the government, he scripted a recovery process stabilizing the economy, helping it weather the storm better than some of its peers.  
+
Joy said PF money should be withdrawn only for major purposes like housing, education of children, or serious hospitalisation. “...Only then will people get social security. So, we are now starting a campaign...to educate people that money must be withdrawn only for essential purposes,“ Joy said.
  
−
But this was short-lived. The economy was buffeted by stubborn inflation, including double-digit food inflation, prompting the central bank to focus on taming prices. It raised rates furiously, almost 13 times, to throttle inflation.
+
===2017: GPF rules liberalised===
 +
[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=GPF-rules-relaxed-for-govt-staffers-28032017010030  GPF rules relaxed for govt staffers, March 28, 2017: The Times of India]
  
−
Of late, frosty ties between RBI and the finance ministry have dominated discussions. Critics slammed the policy to tackle inflation while the government sometimes expressed disappointment. Finance minister P Chidambaram, who is careful with words, appeared disappointed as RBI left interest rates unchanged.
 
  
−
“Growth is as much a challenge as inflation. If the government has to walk alone to face the challenge of growth then we will walk alone,” Chidambaram said highlighting the need for an inflation-growth balance.  
+
In a major relief for government employees, the Centre recently relaxed and simplified the General Provident Fund Rules, particularly related to advances and withdrawals by the subscribers.
  
−
Adding to Subbarao’s problems, the fiscal situation deteriorated. Growth slowed. Scandals and policy missteps, such as retrospective taxes forced investors to the sidelines. Subbarao bravely continued calling for action on the fiscal front to enable him to slash interest rates. That didn’t happen until Chidambaram stepped in as finance minister in September. His reform initiatives helped restore the health of public finances. RBI obliged with a rate cut. But this came with a caveat on the ch a l l e n g e s on the prices front.  
+
As per relaxed norms, employees can withdraw up to 90% of their amount for housing needs and 75% for buying vehicles. The definition of education for the purpose of withdrawal of GP Fund has now been widened to include primary, secondary and higher education, covering all streams and institutions.
  
−
As things appeared to settle down, the crisis on the currency front emerged, prompting RBI to work towards taming the volatile forex market.  
+
The withdrawal limit has also been increased from three months' pay or half the amount at credit, to up to 12 months' pay or 34th of amount at credit, whichever is less.
  
−
Some economists said the RBI under Subbarao misjudged the signals. “You cannot separate two or three issues, one of which is that when it comes to inflation and growth, both monetary and fiscal policies matter. In my assessment, the country had the most unfortunate fiscal policies compounded by the most unfortunate monetary policy,” economist Surjit Bhalla said. “The RBI misjudged the economy, determinant of inflation, determination of growth and determinant of the exchange rate.”
+
Also this is now admissible to a subscriber after completion of 15 years of service.
  
−
He said the RBI under Subbarao had misjudged food inflation and hiked rates. “What could’ve been a virtuous cycle has been turned into a vicious cycle,” Bhalla said. Not all would agree with such a harsh summation.
+
===2018: Those unemployed for 30 days can withdraw 75% ===
 +
[https://timesofindia.indiatimes.com/business/india-business/epfo-member-can-withdraw-75-funds-after-30-days-of-job-loss/articleshow/64751097.cms  EPFO members can withdraw 75% funds after 30 days of job loss, June 26, 2018: ''The Times of India'']
  
−
==Raghuram Rajan==
 
−
[[Raghuram Rajan]]
 
  
−
==Urjit Patel==
+
'''HIGHLIGHTS'''
−
===2016-18===
+
−
[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F08%2F27&entity=Ar01714&sk=C1069BC6&mode=text  Mayur Shetty, After 2 years as RBI governor, Patel nears bad debt endgame, August 27, 2018: ''The Times of India'']
+
  
−
[[File: The first two years of Urjit Patel’s innings as the Governor of the RBI- Economic indicators 2016-18.jpg|The first two years of Urjit Patel’s innings as the Governor of the RBI- Economic indicators 2016-18 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F08%2F27&entity=Ar01714&sk=C1069BC6&mode=text  Mayur Shetty, After 2 years as RBI governor, Patel nears bad debt endgame, August 26, 2018: ''The Times of India'']|frame|500px]]
+
EPFO members can also withdraw remaining 25 per cent of their funds after completion of two months of unemployment
  
−
When Urjit Patel was appointed the 24th governor of the Reserve Bank of India (RBI) in August 2016, TOI had cautioned those who saw him as a pro-administration governor, pointing out that he was an inflation hawk.
+
At present, the members can withdraw the funds after two months of unemployment and settle the account in one go
  
−
As he completes two years in office next week (he took over from the previous RBI governor Raghuram Rajan on September 4, 2016), Patel has demonstrated that he is no pushover. Whether it is interest rates, non-performing assets (NPAs) or the issue of public sector bank regulation — Patel has not shied away from locking horns with the government.
 
  
−
While his first year as the head of the central bank was overshadowed by the events following demonetisation, Patel’s tenacity came to light during his second year. That was when the RBI asked lenders to take the who’s who of India Inc to court and sell their businesses under the newly-introduced Insolvency and Bankruptcy Code. These included corporate groups like Essar, Videocon and Bhushan Steel.
+
Retirement fund body EPFO decided to give its members an option to withdraw 75 per cent of their funds after one month of unemployment and keep their PF account with the body.  
  
−
Patel’s obduracy, insisting that lenders stick to the letter for classifying loans as bad, has frustrated senior bureaucrats and politicians. Government officials point out that even public sector companies fail to make timely payments. However, for those who have been paying attention to Patel, this tough stance should not come as a surprise.
+
The members would also have an option to withdraw remaining 25 per cent of their funds and go for final settlement of account after completion of two months of unemployment under the new provision in the Employee Provident Fund Scheme 1952.  
  
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A year ago in a speech titled ‘Resolution of stressed assets: Towards the endgame’, Patel had highlighted the challenges ahead, “We all must realise that it will be a long haul before the intended objectives are fully achieved... but as long as the endgame is a desirable goal, these should be worth it for placing the private economy structurally on a path of sustained growth.”
+
"We have decided to amend the scheme to allow members to take advance from its account on one month of unemployment. He can withdraw 75 per cent of its funds as an advance from its account after one month of unemployment and keep its account with the EPFO," Labour Minister Santosh Kumar Gangwar, who is also the Chairman of EPFO's Central Board of Trustees, told reporters after the trustees meet here.  
  
−
When it comes to setting of interest rates, the central bank is perhaps more independent under Patel then it was ever before. This is because Patel’s regime in the RBI coincided with the constitution of the monetary policy committee (MPC), which had a mandated objective to keep inflation at around 4%. Incidentally, the MPC was constituted based on recommendations made by a committee headed by Patel as deputy governor.
+
At present, in case of unemployment, a subscriber can withdraw his or her funds after two months of unemployment and settle the account in one go.  
  
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Patel’s second year saw increased friction with the finance ministry following the Punjab National Bank scam. Soon after news of the scam broke, FM Arun Jaitley lashed out at the central bank, stating that while politicians are accountable, regulators (meaning the RBI) are not.
+
The minister was of the view that this new provision would give an option to members to keep their account with the EPFO, which he can use after regaining employment again.  
  
−
Patel’s comeback was equally strong. In one of his rare speeches, the governor said, “Success has many fathers, failures none. Hence, there has been the usual blame game, passing the buck, and a tonne of honking.” He then listed seven legislative provisions that ensured the RBI did not have much of a say in public sector banks. The finance ministry’s pointed rebuttal brought to light the stress in the relationship.
+
However, it was proposed that the members would be allowed to take 60 per cent of funds as an advance on unemployment for not less than 30 days. But, the CBT raised the limit to 75 per cent in the meeting held today.  
  
−
Patel, whose signatures appear in more currency notes than any other RBI governor, is the most low-profile central banker with only eight public speeches in two years. The final year of his term, being an election year, will be even more crucial as it will also bring him into the stressed loan endgame that he speaks about.
+
The minister further said, "We approved almost the entire agenda listed for the meeting of the CBT today. We have also given an extension of one year to ETF (exchange-traded funds) manufacturers SBI and UTI Mutual funds till July 1, 2019. We have also extended the term of fund managers till December 31, 2018."
  
 +
There was a proposal to give an extension of six more months to its five fund managers SBI, ICICI Securities Primary Dealership, Reliance Capital, HSBC AMC and UTI AMC for managing its corpus.
  
 +
The five fund managers were appointed for three years from April 1, 2015. They were given extension till June 30, 2018. The CBT has also approved the proposal to appoint a consultant for selection of portfolio managers.
  
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[[Category:Economy-Industry-Resources|R
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The minister also said that the EPFO's ETF investment would soon cross Rs 1 lakh crore mark as it has already invested Rs 47,431.24 crore till May end this year earning a return of 16.07 per cent.
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[[Category:Pages with broken file links|THE RESERVE BANK OF INDIA]]
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=Balance sheet=
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The EPFO has also extended the tenure of its consultant CRISIL for evaluation of the performance of fund manager till December 31, 2018.
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==Where do RBI’s surplus funds come from?==
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F21&entity=Ar02914&sk=1554FE66&mode=text  November 21, 2018: ''The Times of India'']
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[[File: The RBI’s reserves, 2013-18.jpg|The RBI’s reserves, 2013-18 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F21&entity=Ar02914&sk=1554FE66&mode=text  November 21, 2018: ''The Times of India'']|frame|500px]]
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On the widening of the range of the ETF investments by the EPFO, a CBT member said that the agenda was deferred and the board was unanimous that a call will be taken on the advice of new fund managers and consultants to be appointed shortly.  
  
−
'''Where do RBI’s surplus funds come from?'''
+
It was proposed to amend the investment pattern of the EPFO to enable the body to invest in equity index ETF beyond NIFTY 50 and Sensex ETF.
  
−
RBI’s board this week decided to set up an expert committee to examine its ‘Economic Capital Framework’. The committee is expected to break down RBI’s balance sheet to decide if its reserves are consistent with its needs.
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[[Category:Economy-Industry-Resources|P PROVIDENT FUND: INDIA
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=Employees’ Provident Fund Organisation EPFO=
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==Interest rates==
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===2012-20===
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[[File: Interest rates given by the EPFO to its six crore subscribers, 2012-20.jpg| Interest rates given by the EPFO to its six crore subscribers, 2012-20 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2020%2F03%2F06&entity=Ar00527&sk=5ED2CDD0&mode=text  EPFO snips interest rate by 0.15% to 7-year low of 8.5%, March 6, 2020: ''The Times of India'']|frame|500px]]
  
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'''What is the size of the RBI’s balance sheet?'''
 
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In 2017-18, the size of RBI’s balance sheet was Rs 36.2 lakh crore. Its balance sheet, however, is unlike that of a company. The currency notes it prints make up more than half its liabilities. Another big share, 26%, represents its reserves. These are invested mainly in foreign and Indian government securities (essentially promisory notes bearing an interest rate against which these governments borrow) and gold. RBI holds a little over 566 tons of gold, which along with its forex assets make up almost 77% of its assets. Sometimes, the finance ministry and RBI disagree on what level of reserves RBI must hold to be consistent with its operations.
 
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'''Where do the RBI’s reserves come from?'''
 
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Reserves with RBI are not all of the same kind. In the current debate there are two which are relevant: The Currency & Gold Revaluation Account (CGRA) makes up the biggest share — it was Rs 6.9 lakh crore in 2017-18. This represents the value of the gold and foreign currency that RBI holds on behalf of India. Simply put, variations in this represent the changing market value of these assets. Thus, the RBI notionally gains or loses on this count according to market movements. For example, last year the CGRA increased by 30.5% largely because of the depreciation of the rupee against the US dollar and due to an increase in the price of gold.
 
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The Contingency Fund (CF) is a specific provision meant for meeting unexpected contingencies that arise from RBI’s monetary policy and exchange rate operations. In both cases, RBI intervenes in the relevant markets to adjust liquidity or prevent large fluctuations in currency value. The CF in 2017-18 was Rs 2.32 lakh crore, or 6.4% of assets. The CGRA and CF put together constituted 26% of assets (and because in a balance sheet assets and liabilities must by definition match, also the same proportion of its liabilities).
 
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'''What is the RBI’s surplus?'''
 
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This represents the amount RBI transfers to the government. There are two unique features about RBI’s financial statements. It is not required to pay income tax and has to transfer to the government the surplus left over after meeting its needs. RBI’s income comes mainly through interest on the securities it holds and in 2017-18 the largest component of expenditure was a provision of about Rs 14,200 crore it made to the contingency fund.
 
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Obviously, the larger the provision made to CF, the lower the surplus. Beginning 2013-14, RBI didn’t make a provision to CF for three successive years as a technical committee felt its “buffers” were more than enough. In the last two years, however, RBI has made provisions to CF. The adequacy of the current level of CF is one of the key issues likely to be debated extensively by the expert committee.
 
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==2013-18: surplus transferred ==
 
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F20&entity=Ar02210&sk=E802297C&mode=text  Pradeep Thakur, In last 5 yrs, RBI transferred 75% of its income as surplus, November 20, 2018: ''The Times of India'']
 
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[[File: RBI's Balance Sheet, 2013-18.jpg|RBI's Balance Sheet, 2013-18 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F20&entity=Ar02210&sk=E802297C&mode=text  Pradeep Thakur, In last 5 yrs, RBI transferred 75% of its income as surplus, November 20, 2018: ''The Times of India'']|frame|500px]]
 
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The Reserve Bank of India (RBI) transferred around Rs 2.5 lakh crore to the government during the last five years, which was around 75% of the central bank’s income.
 
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While analysing the government’s finance account last year, the Comptroller and Auditor General studied RBI’s income, expenditure and surplus transferred to the Centre between 2013-14 and 2017-18 and found that out of its income of Rs 3.3 lakh crore, the central bank had transferred Rs 2.48 lakh crore. The highest payout was in 2015-16, when 83% of the RBI’s income was transferred to the Centre as surplus.
 
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RBI’s reserves have been a bone of contention, with the government keen to increase the payout. What has added to the discord in recent years is the Economic Survey pointing out that RBI has higher reserves than other central banks.
 
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In the recent past, RBI has been transferring surplus of around Rs 65,000 crore annually to the government, barring 2017 when its expenditure more than doubled to Rs 31,000 crore. Till 2016-17, the RBI’s expenditure remained below Rs 15,000 crore but shot up due to higher cost of printing currency notes at the time of demonetisation.
 
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In a speech last month, RBI deputy governor Viral Acharya had hit out at the government for seeking higher dividend and cited the example of Argentina, where a similar development took place eight years ago, to argue that the central bank’s autonomy should not be compromised. The issue was one of the key agenda items at the marathon board meeting of the RBI.
 
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===Surplus capital, 2013-18===
 
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2019%2F02%2F02&entity=Ar02900&sk=7D9EB8EA&mode=text  RBI’s forex sale profit to help bridge deficit, February 2, 2019: ''The Times of India'']
 
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[[File: The Reserve Bank of India’s surplus capital, 2013-18.jpg|The Reserve Bank of India’s surplus capital, 2013-18 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2019%2F02%2F02&entity=Ar02900&sk=7D9EB8EA&mode=text  RBI’s forex sale profit to help bridge deficit, February 2, 2019: ''The Times of India'']|frame|500px]]
 
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''To Consider ₹28,000Cr Interim Dividend In Addition To ₹40,000Cr Already Given To Govt''
 
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The volatility in the foreign exchange and bond market is helping the government to bridge some of its fiscal deficit. The Reserve Bank of India (RBI) is understood to have made record profits from selling dollars in the foreign exchange market when the rupee came under pressure.
 
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These profits are likely to be distributed to the government in the form of an interim dividend, which will be considered in the next board meeting of the central bank.
 
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Economic affairs secretary Subhash Chandra Garg said on Friday that the government expects an interim dividend of Rs 28,000 crore from the RBI. This is in addition to the Rs 40,000 crore already received from the central bank during FY19, Garg said in an interaction with the media after the interim budget was announced.
 
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The Rs 28,000-crore interim dividend will be transferred by the RBI before end March 2019. As a result, the interim dividend will help the government ease fiscal pressure as the money will come within the current financial year. The RBI, which follows a July-June financial year, paid about 63% higher dividend than the previous year (2016-17).
 
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Meanwhile, the government has revised dividend or surplus of the RBI, nationalised banks and financial institutions to Rs 74,140 crore from Rs 54,817 crore estimated earlier in the Budget 2018-19. In the next year too, the RBI is expected to be a major contributor to the government’s revenues.
 
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A panel headed by former RBI governor Bimal Jalan is looking at whether the central bank is holding surplus capital, which can be transferred to the government. The panel is expected to submit its report by end-March.
 
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According to Care Ratings MD & CEO Rajesh Mokashi, dividends and profit will contribute highest (50%) to the non-tax revenue.
 
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“The government is expecting higher dividends (11.8% more) by way of surplus transfers from the RBI as the performance of the PSUs has been impacted by nonperforming assets. Other non-tax revenues are slated to grow 8.9% over 34.3% yearon-year in the previous year,” he said. Other non-tax revenues include social, general and economic services provided by the government.
 
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=Dividends=
 
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==2017: Demonetisation, printing of currency: RBI halves dividend ==
 
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[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=RBI-halves-dividend-to-govt-to-Rs-31k-11082017021025  Mayur Shetty, RBI halves dividend to govt to Rs 31k cr, August 11, 2017: The Times of India]
 
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[[File: RBI dividend to government, 2013-17.jpg|RBI dividend to government, 2013-17; [http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=RBI-halves-dividend-to-govt-to-Rs-31k-11082017021025  Mayur Shetty, RBI halves dividend to govt to Rs 31k cr, August 11, 2017: The Times of India]|frame|500px]]
 
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'''Demonetisation, Printing Of Currency Take A Toll'''
 
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In a surprise announcement, the RBI said that it has halved its dividend payment to the government to Rs 30,659 crore for 2016-17 from nearly Rs 66,000 crore in each of the previous two years. The lower dividend is due to huge expenses borne by the RBI by way of interest payment to banks as part of its liquidity management exercise and in printing notes following demonetisation.
 
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The dividend amount was decided by the central board of directors, which met to finalise accounts for the year ended June 2016.The board would have also finalised how the central bank deals with the demonetised currency notes that were not turned in before June 2017. However, the RBI is yet to divulge details on whether it has extinguished the currency which has not been deposited.
 
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The halving of dividend will hurt the government's finances. “The lower amount will be a concern since the government's non-tax receipts will be affected. In the Budget, it was assumed that around Rs 75,000 crore would come from RBI, public sector banks (PSBs) and financial institutions compared with a little over Rs 76,000 cr in FY17,“ said Madan Sabnavis, chief economist, CARE Ratings. According to Sabnavis, as PSBs are unlikely to do better than last year and the RBI will be transferring a smaller amount, this will impact the fiscal deficit numbers.“If other conditions remain unchanged, the fiscal deficit can increase from 3.2% to 3.4% this year,“ he added.
 
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Devendra Kumar Pant, chief economist, India Ratings, said the drop in dividend is due to lower earnings due to reverse repo transactions (where the RBI borrows from banks) and high costs incurred in printing of notes. Besides this, the appreciation of the domestic currency vis-a-vis the US dollar led to lower returns in rupee terms. “Firstquarter direct tax collections, if continued in the fiscal, will provide some buffer for central government deficit,“ he added.
 
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The minister of state for finance Arun Meghwal had earlier said that it costs between Rs 2.87 and Rs 3.09 to print the new Rs 500 note and Rs 3.54-3.77 for a Rs 2,000 note. Given these numbers, it would have cost the RBI over Rs 13,000 crore to print fresh currency notes during demonetisation. This is almost thrice the Rs 3,421 crore the RBI spent on printing notes in the previous year. According to economists, when the macro fundamentals are so und, the RBI ends up with weak earnings and, conversely, when the country's fundamentals are under strain, the central bank generates exceptional gains. This is because at times of stress, the RBI tightens liquidity and makes windfall profits lending to banks at high rates.But when the rupee is strengthening, the central bank loses money by buying a falling dollar. The biggest cost to the RBI by far, when the country is facing a problem of plenty, is the cost of impounding surplus liquidity. Banks are sitting on sur plus funds due to absence of credit demand. Soumya Kanti Ghosh, chief economist, SBI, said, “Credit growth has decelerated by Rs 1.5 lakh crore in current fiscal -a historic low.“ He added that given surplus funds, SBI, Axis Bank and Bank of Baroda have reduced the savings bank rate to keep the lending rate low.
 
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Since November, banks have been awash with surplus liquidity thanks to cash being deposited with them.While most of these were slowly withdrawn, a large chunk continued to remain with banks. According to dealers, the surplus liquidity with banks has risen to Rs 3 lakh crore as compared to the RBI's target range of Rs 1 lakh crore.
 
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==2016> 2018==
 
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F08%2F09&entity=Ar02101&sk=6468B053&mode=text  At ₹50,000cr, RBI gives govt 63% more dividend, August 9, 2018: ''The Times of India'']
 
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The RBI has transferred a surplus of Rs 50,000 crore to the central government, which is 63% more than last year’s dividend of Rs 30,659 crore. This payout is also 91% of the Rs 54,817-crore dividend income that the government budgeted from the RBI, nationalised banks and other financial institutions in its Budget 2018.
 
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It is likely that the central bank would have generated a higher surplus arising out of foreign exchange operations. The RBI has sold foreign currency assets worth over $20 billion this year, which is reflected in the decline in forex reserves from nearly $400 billion on March 30, 2018 to around $379 billion. The foreign currency assets sold were worth Rs 1.40 lakh crore and would have added to the RBI’s rupee balance sheet and enabled it to pay a higher dividend.
 
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Public sector banks have not distributed any dividend to the government as all but two of them have reported losses. However, insurance companies would have made some payment to the government. Earlier in March, the RBI paid an interim dividend of Rs 10,000 crore at the insistence of the Centre to support fiscal position.
 
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“The central board of directors of the RBI, at its meeting held on August 8, approved the transfer of surplus amounting to Rs 500 billion (Rs 50,000 crore) for the year ended June 30, 2018 to the government,” the central bank said in a statement.
 
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Unlike other financial institutions, the RBI follows a July-June financial year. The dividend payout had shrunk last year as the RBI had to spend a lot of money in printing of new currency notes following demonetisation in November 2016.
 
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==2020; 2012-2020==
 
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2020%2F08%2F15&entity=Ar03101&sk=E5F0328B&mode=text  RBI transfers ₹57,128 crore surplus to govt for 2019-20, August 15, 2020: ''The Times of India'']
 
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[[File: RBI dividend to the government, 2012-2020..jpg|RBI dividend to the government, 2012-2020. <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2020%2F08%2F15&entity=Ar03101&sk=E5F0328B&mode=text  RBI transfers ₹57,128 crore surplus to govt for 2019-20, August 15, 2020: ''The Times of India'']|frame|500px]]
 
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''' In Line With Budget, But Won’t Make Up For Revenue Shortfall '''
 
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The Reserve Bank of India (RBI) announced a dividend payout of Rs 57,128 crore to the government, in line with Budget expectations but not enough to make up for revenue shortfalls from other heads. This year’s dividend is not comparable to last year’s surplus transfer of Rs 1,76,051 crore, which included a one-time transfer of extra reserves in line with the recommendation of the Bimal Jalan-headed committee.
 
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The dividend was declared in the 584th meeting of the RBI’s central board. Besides approving accounts and maintaining a 5.5% contingency risk buffer, the board also discussed setting up of an innovation hub. Before adoption of the Jalan committee recommendations, the buffer had stood at 6.8%.
 
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In the Union Budget 2020, the government had provisioned Rs 89,600 crore in dividend from the RBI, state run banks and financial institutions. Of this, the RBI was expected to contribute Rs 60,000 crore. Nationalised banks will not be declaring any dividend this year as the RBI has barred them from doing so in order to conserve capital to cover defaults arising out of the Covid-19 crisis.
 
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“The overall balance sheet of the central bank had expanded close to 30% in the RBI accounting year. Such rapid expansion would obviously limit the amount of seigniorage surplus to the government. Also, at the current rate, the total capital of the RBI including reserves is ahead of the 20.8-25.4% recommended by the Jalan committee that the central bank needs to maintain,” said SBI chief economist Soumya Kanti Ghosh.
 
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According to Ghosh, the government cannot look to the central bank to raise funds. “The surprise to the market was the rise in inflation of close to 7%. This is because of the shift in consumption from goods and services to food items. This will make it difficult for the RBI to cut rates. Now it is for the government to take action,” said Ghosh.
 
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Bankers say that RBI’s revenue generation is highest when there is volatility in the financial markets — either bonds or foreign currency. During times of rupee volatility, the RBI ends up selling billions of dollars of foreign currency assets, which generate huge profits because of the weaker rupee. Similarly, when there is volatility in the bond markets, the RBI makes money through its open market operations.
 
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This year, despite the economic crisis, financial markets — including the currency and bond markets — have been stable with the central bank buying dollars. Facing a massive tax shortfall, along with higher spending due to Covid, the government is keen to maximise revenue from other sources, especially when the department of investment and public asset management (Dipam) has failed to garner resources.
 
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=Gold reserves=
 
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==Purchases in 2009, 2018==
 
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F09%2F04&entity=Ar02007&sk=B0770925&mode=text  RBI boosts forex kitty with first gold buy in 9 years, September 4, 2018: ''The Times of India'']
 
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The Reserve Bank of India (RBI) has bought nearly 8.5 tonnes of gold in financial year 2017-18, the first purchase of yellow metal by the central bank in almost nine years, a report said.
 
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The RBI held just over 566 tonnes of gold as on June 30, 2018, compared with 558 tonnes as on June 30, 2017, according to the central bank’s latest annual report for 2017-18.
 
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The central bank had last purchased gold in November 2009, when it had bought 200 tonnes of yellow metal from the International Monetary Fund (IMF).
 
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Of over 566 tonnes of gold reserves, about 292 tonnes is held as backing for notes and is shown as an asset of the issue department, and the balance 274 tonnes is treated as an asset of the banking department.
 
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The value of gold held as asset of banking department rose by 11.1% to Rs 69,674 crore as on June 30, 2018, from Rs 62,702 crore as on June 30, 2017.
 
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This increase was primarily on account of depreciation of rupee as against the dollar and the addition of nearly 8.5 tonnes of gold during the year, the RBI’s annual report said.
 
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==2014-19==
 
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[[File: The RBI’s Gold reserves, 2014-19.jpg|The RBI’s Gold reserves, 2014-19 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2020%2F03%2F04&entity=Ar02505&sk=04FB88CD&mode=image  March 4, 2020: ''The Times of India'']|frame|500px]]
 
  
 
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'''See graphic''':
  
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'' The RBI’s Gold reserves, 2014-19 ''
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'' Interest rates given by the EPFO to its six crore subscribers, 2012-20 ''
  
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=Government- RBI relations=
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=Private EPF trusts=
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== Why govts want central banks on their side==
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==They cannot declare interest lower than EPFO's==
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F05&entity=Ar02504&sk=671ADF05&mode=text November 5, 2018: ''The Times of India'']
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[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=Pvt-EPF-trusts-cant-declare-interest-lower-than-10102017014026 Lubna Kably, Pvt EPF trusts can't declare interest lower than EPFO's, October 10, 2017: The Times of India]
  
  
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'''Why govts want central banks on their side'''
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'''Companies To Be Periodically Ranked On Six Parameters'''
  
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A country's central bank and its government may not always see eye to eye — the latest rift between the RBI and the Centre is a case in point. But what makes a central bank essential to a country's economy, and what kind of power does it enjoy?
+
Nearly 1,500 private employee provident fund trusts set up by companies for administration of their employee provident funds (EPFs) will have to ensure that the rate of interest declared by them is at par or higher than that declared by the Employee Provident Fund Office (EPFO).
  
 +
Further, there will be periodic evaluation and monthly ranking of companies which have set up such trusts to ensure better compliance.Employees will also have to be promptly intimated within two days when their EPF account is credited.
  
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'''Can an economy work without a central bank?'''
+
The ministry of labour noticed that a few private EPF trusts were not able to declare the rate of interest at par with EPFO. Hence, a recent circular emphasises that any deficit in interest declared by the board of trustees is to be made good by the employer to bring it up to the statutory limit.
  
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Considering the influence of central banks in today’s age, this is a difficult question to answer. Many countries have witnessed a constant tussle between the elected government and their central bank but no modern government has been able to either abolish or significantly curtail the power of their central bank. In the absence of such a bank it is difficult to imagine how a reliable payments system, a stable currency and controlled inflation level could be maintained.
+
“About 1,500 companies have been granted exemption (ie: permission) to maintain their own EPF trusts. While declaration of the minimum interest prescribed by the EPFO and meeting of any deficit by the employer company , are conditions prescribed for running a private EPF trust, some were not following it.The recent circular on interest rate and prompt communication to employees aims to ensure parity for employees covered by such private trusts,“ said an official.
  
 +
Sonu Iyer, leader and partner, People Advisory Services at EY India, illustrates: “For the financial year 2016-17, the interest rate announced by the EPFO was 8.65%. Irrespective of the earnings actually made by the private trusts, they are required to provide this minimum interest rate to their employees. These trusts have also been advised, via the circular, to constitute investment committees to ensure optimal financial management of the trust's funds.“
  
−
'''What is the role of a central bank?'''
+
“Stringent action, such as cancellation of the permission given to the private EPF trust, will be taken for repeated defaults, especially for delays in remittance of money collected from employees or for reduced interest rates,“ say government sources.
  
−
Among the important roles of a central bank is to control the cost of money by changing interest rates. This role itself gives it immense power to stimulate or slow the economy. Apart from this, the central banks — in our case Reserve Bank of India — formulate, implement and monitor the country’s monetary policy. It monitors the financial system by prescribing broad parameters of banking operations to ensure the public has confidence in the system and protects depositors’ interest.
+
Companies with private EPF trusts will be evaluated periodically on six parame ters (100 points for each), such as: full and timely monthly remittances of EPF accumulations to the private trust; transfer of funds ­­ for example on exit of employees; efficacy of making investments, the rate of return and settlement of claims and audit of the private trust's accounts.
  
−
The bank also monitors foreign exchange reserves. It is the only authority that has the right to issue or destroy currency in circulation. The central bank also does merchant banking for the government as well as other banks.
+
All companies having 20 or more employees have to provide a social security net via provident fund. If a company has not opted for its own private provident fund trust, the employees are covered by the fund administered by the EPFO, which currently oversees nearly 15 crore employee accounts.
  
 +
EPFO communicates remittances made to an employee's account through UMANG mobile app e-passbook.
  
−
'''How independent is the RBI?'''
+
The EPFO website has already put up the ranking of 1,552 companies for July , with 50 firms getting a perfect score of 600. Notable names include Steel Authority of India, West Bengal Power Development Corporation, Gujarat State Fertilizers, Godrej Consumer Products, Nestle India, and Mother Diary .
  
−
Like other central banks, RBI is an independent entity within the government. It is governed by a central board of directors appointed by the government according to the Reserve Bank of India Act. The board is appointed for four years with a governor and up to four deputy governors. There are 10 other directors nominated by the government, two government officials and four non-official directors from local boards. There are also four local boards in Mumbai, Kolkata, Chennai and New Delhi to advise the central board on local matters. Local board members are nominated by
+
=Public Provident Fund (PPF)=
 +
==10- year bond determines PPF rates==
 +
[[File: 2016-17- the yield of the 10- year bond that determines PPF rates.jpg|2016-17: the yield of the 10- year bond that determines PPF rates <br/> From [http://epaperbeta.timesofindia.com/Gallery.aspx?id=25_09_2017_024_019_005&type=P&artUrl=Politics-may-prevent-a-steep-cut-in-the-25092017024019&eid=31808 The Times of India], September 25, 2017 |frame|500px]]
  
 +
See graphic, '' 2016-17- the yield of the 10- year bond that determines PPF rates ''
  
−
'''Where is the most powerful central bank?'''
+
==Premature closure for studies, medical expenses==
 +
[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=Premature-PPF-closure-okayed-for-studies-med-expenses-22062016008071 ''The Times of India''], Jun 22 2016
  
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While it controls the world’s largest economy, US's Federal Reserve Bank also issues treasury bills to raise money to finance spending. These US securities are bought by other nations and their value is based on the price of the US dollar. If the Fed lowers interest rate and makes dollar cheaper to borrow, the pinch will be felt by all other economies. Similarly, a stronger dollar will benefit countries that hold US securities.
+
'''Premature PPF closure okayed for studies, med expenses'''
  
−
==1935-2016: Govt. vs. the RBI==
+
Subscribers of the Public Provident Fund (PPF) can now close their accounts before maturity , but after it completes five years, for reasons such as higher education or expenditure towards a medical emergency .
−
[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F03&entity=Ar00507&sk=05B1245C&mode=text  Govt vs RBI: Top FinMin man mocks dy governor, November 3, 2018: ''The Times of India'']
+
“A subscriber shall be allowed premature closure of his account, or account of a minor of whom he is the guardian, on the ground that the amount is required for treatment of serious ailments or life-threatening diseases of the account-holder, spouse or dependent children, on production of supporting documents from the competent medical authority ,“ the finance ministry said in a notification..
  
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[[File: 1935-2016- tiffs between the govt. and the RBI.jpg|1935-2016: tiffs between the govt. and the RBI <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F03&entity=Ar00507&sk=05B1245C&mode=text  Govt vs RBI: Top FinMin man mocks dy governor, November 3, 2018: ''The Times of India'']|frame|500px]]
+
Similarly , the closure of account to seek funds for higher education will require the submission of documents and fee bills confirming the account-holder's admission in a recognised institution in India or abroad.
  
−
''Another DG Gives Speech Attacking Centre On Lending''
+
==Rules and procedures for holders==
 +
===PPF account to be closed if holder becomes NRI===
 +
[https://timesofindia.indiatimes.com/business/india-business/ppf-account-to-be-closed-if-holder-becomes-nri/articleshow/61330739.cms  October 30, 2017: The Times of India]
  
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Hostilities between the Modi government and the Reserve Bank of India remained at heightened levels with a top bureaucrat taking to social media on Friday morning to mock a recent speech of deputy governor Viral Acharya. Hours later, the RBI uploaded a speech another deputy governor, N S Vishwanathan, gave at XLRI Jamshedpur earlier this week. In his speech, Vishwanathan attacked the government’s arguments for easing capital requirements, saying that it would result in banks being strong only in a “make-believe” manner.
 
  
−
Economic affairs secretary Subhas Chandra Garg, the finance ministry’s point person for managing ties with the RBI, fired the first salvo when he took aim at Acharya’s comment that “governments that do not respect central bank independence will sooner or later incur the wrath of financial markets”.
+
'''HIGHLIGHTS'''
  
 +
Government has notified that PPF accounts would be closed prior to maturity in case of holders changing their personal status to become NRIs
  
−
'''RBI dy guv against govt’s bid to push bank credit'''
+
NRIs are not allowed in instruments like the National Savings Certificates, Public Provident Fund, Monthly Income Schemes and other time deposits offered by the post office
  
−
Rupee trading at less than 73 to a dollar, Brent crude below $73 a barrel, markets up by over 4% during the week and bond yields below 7.8%. Wrath of the markets?” economic affairs secretary Subhas Chandra Garg tweeted on Friday.
+
Amending rules on post office savings schemes like the National Savings Certificates (NSC) and Public Provident Fund (PPF), the government has notified that such accounts would be closed prior to maturity in case of holders changing their personal status to become non-resident Indians (NRIs).
  
−
Ironically, Garg’s very public dig at governor Urjit Patel’s hand-picked deputy came just two days after the finance ministry issued a carefully-worded statement that among other things signaled its displeasure with the RBI for airing its differences with the government.
+
The amended rules were notified in the official gazette earlier this month.
  
−
Vishwanathan, who unlike Acharya is a career central banker, appeared to be at odds with the government’s push to accelerate bank credit when he indicated that higher growth in lending was not desirable. “It may be noticed that in the past, high levels of credit growth due to ‘supply push’ have resulted in high corporate leverage and consequent NPAs in the banking system,” he said.
+
The amendment to the PPF Scheme, 1968, says: "If a resident who opened an account under this scheme, subsequently becomes a non-resident during the currency of the maturity period, the account shall be deemed to be closed with effect from the day he becomes non-resident".
  
−
“We must guard against any push for dilution of standards in the name of aligning them with international benchmarks because that will be cherry-picking and will result in our banks being strong in a make-believe sense and not in reality.” This appeared to be a response to financial services secretary Rajiv Kumar’s statement last week that minimum common equity (CET) Tier I ratio as prescribed by RBI stands at 5.5% as against 4.5% under Basel III norms. A relaxation of the capital requirement to Basel III levels would enable bank to lend up to Rs 6 lakh more.
+
The interest payable would be up to the date of the account closure, it said.
  
−
But, according to the deputy governor, current levels of provisions maintained by banks may not be enough to cover the expected losses due to defaults, and hence adequate buffers must be built to absorb the expected losses which are under-provided. Vishwanathan said that bank credit was already growing at 14% year on year in line with GDP growth. Within this, bank loans to NBFC during this period grew 48.3%.
+
A separate notification on NSCs said in case of a similar change of status of the certificate holder before the maturity period, "the certificate will be encashed, or deemed to be encashed on the day he becomes non-resident" and interest will be paid accordingly.
  
−
According to Vishwanathan, international capital norms have been designed based on internationally observed recovery rates. However, the loss given defaults are far more than those observed internationally. He also shot down arguments that some defaults are caused by external circumstances and that regulations should treat them differently based on the reasons behind them. “This is a fallacy. There are two issues here: recognition and resolution. The recognition of default or accounting for deterioration in the quality of asset should be independent of the reasons for such default or deterioration.”
+
NRIs are not allowed in instruments like the National Savings Certificates, Public Provident Fund, Monthly Income Schemes and other time deposits offered by the post office.
  
−
===When mediating PM, diplomatic governors averted crisis===
+
In September 2017, the government had retained the interest rate on Public Provident Fund for October-December unchanged at 7.8%, in line with the rates for small savings schemes.
−
[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F12%2F11&entity=Ar02013&sk=A0864585&mode=text  Mayur Shetty, December 11, 2018: ''The Times of India'']
+
  
 +
==Withdrawals==
 +
===For housing, health===
 +
[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=PF-withdrawal-allowed-for-housing-health-19042016009014 ''The Times of India''], Apr 19 2016
  
−
Public statements and disclosures by former governors — Y V Reddy, D Subbarao and Raghuram Rajan — in their writings have shown that there have been disagreements between the finance ministry and the RBI. But none of these disputes ever boiled over to a situation leading to the governor’s resignation.
+
''' PF withdrawal allowed for housing, health '''  
−
 
+
−
According to central bank insiders, in the past governors have adopted a strategy of convince and compromise. Also, in the case of differences that arose during the 10-year UPA government, then Prime Minister Manmohan Singh, himself a former governor, helped in brokering peace between the RBI and the finance ministry. Even though previous governors have been bureaucrats, after coming to the RBI it is the chair that has taken over. Both Reddy and Subbarao have been extremely strong votaries of independence of the central bank after taking charge as governors. However, despite their independence they have acknowledged that the finance minister is senior to the RBI governor. In the case of Patel, his finance minister Arun Jaitley had taken a fourmonth break between May and August — a time when differences with the government were boiling over.
+
−
 
+
−
Additionally, in the past the differences were in the area of interest rates that has ceased to be an issue after the creation of the monetary policy committee (MPC), which coincided with the appointment of Patel.
+
−
 
+
−
Past governors have also managed to handle their differences with the finance ministry using their personal connection with finance ministry officials. Former governors, Reddy and Subbarao, were both former bureaucrats and had many friends in the finance ministry. Rajan, though not a bureaucrat, had worked in Delhi as chief economic adviser where he was prepped for the position of RBI governor.
+
−
 
+
−
In the case of Patel, his engagement with the finance ministry was two decades earlier as deputy to the IMF India representative. During this period, he build a friendship with Manmohan Singh.
+
−
 
+
−
There are some insiders who feel that the government’s choice of appointing outside economic experts as governor is a failed experiment as they have very little skin in the game.
+
−
 
+
−
Raghuram Rajan had made it clear that he had a job at Chicago Booth waiting for him when his term ended. Similarly, many expect that Patel would pursue academic interests after his stint as governor.
+
−
 
+
−
 
+
−
==1956-57: Pt. Nehru vs. Sir Rau==
+
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[https://timesofindia.indiatimes.com/india/nehru-letter-to-rbi-may-give-modi-government-ammunition-in-urjit-row/articleshow/66503739.cms  Sidhartha, November 5, 2018: ''The Times of India'']
+
−
 
+
−
 
+
−
The traditionally fraught nature of government-RBI relations goes back to the early days of the central bank when Sir John Osborne Smith resigned his governorship in 1937 following differences with the colonial government over interest and exchange rates.
+
−
 
+
−
But it is Jawaharlal Nehru’s stormy exchanges with Sir Benegal Rama Rau, leading to his resignation as RBI governor, that has tickled the interest of people in the finance ministry – and may provide them with an effective counter to the Rahul Gandhi-led Congress’s attack on the government for undermining the autonomy of the central bank.
+
−
 
+
−
Rau, a civil servant, was the fourth governor of RBI and quit in January 1957 after seven and a half years in the saddle when Nehru sided with finance minister TT Krishnamachari and made it clear that RBI was part of “the various activities of the government”.
+
−
 
+
−
Rau had accused TTK of “rude behaviour” over differences that began over a Budget proposal. TTK had referred to RBI as a “section” of the finance ministry and described it as “reserved”, as well as expressed doubts in Parliament “as to whether it is capable of doing any thinking”.
+
−
 
+
−
In a letter to Rau, India’s first Prime Minister and Rahul Gandhi’s great-grandfather, wrote: “It (RBI) has to advise government, but it also has to keep in line with government.” He suggested the governor could resign if he thought that it was not possible to continue; Rau put in his papers a few days later.
+
−
 
+
−
Nehru said it would be “completely absurd” if the central bank followed a different policy because it did not agree with the government’s objectives or its methods.
+
−
 
+
−
“You have laid stress on the autonomy of the RBI. Certainly it is autonomous, but it is also subject to the central government’s directions…. Monetary policies must necessarily depend upon the larger policies which a government pursues. It is in the ambit of those larger policies that the RBI can advise. It cannot challenge the main objectives and policies of government,” asserted Nehru.
+
−
 
+
−
“When you talked to me I pointed out to you that it was for the central government to lay down policies and the RBI could not obviously have policies contrary to those of the central government. You agreed with this. And yet I find in your memorandum a different point of view,” he added.
+
−
 
+
−
The RBI believed that TTK’s Budget proposal would effectively push up interest rates and forwarded a resolution of the central board. “The board requests the government to consult RBI in advance on all matters which significantly affect the monetary structure and policy,” the board said on December 12, 1956.
+
−
 
+
−
The same day, Nehru wrote to the governor pulling him up for his “improper approach” which was seen to be “agitational” against the Centre.
+
−
 
+
−
A fortnight later, Rau responded to Nehru’s letter saying that despite differences on several issues, nothing had leaked out from RBI. He then wrote that the government could reject RBI’s advice though it should be given an opportunity to place all facts and its view before a decision was taken on “technical and sometimes complicated monetary issues”.
+
−
 
+
−
The then governor also took “strong exception” to some of Nehru’s comments on not supporting government policies and said the consultations over the Budget proposal were inadequate.
+
−
 
+
−
In the Budget, the government had proposed to increase the stamp duty on an instrument used by lenders to get loans at a discount to RBI’s key policy rate – the bank rate. RBI argued that the higher stamp duty, which it said was decided without prior consultation, would push up the bank rate by half a percentage point.
+
−
 
+
−
Parallels are being drawn between the developments six decades ago and the current power tussle between the Centre and RBI – although in that instance, the central bank had gone out on a limb to criticise a Budget proposal whereas it’s the government that is now unhappy with the RBI for not taking on board its concerns about the economy.
+
−
 
+
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While most governments and the central bank have had differences over issues ranging from interest rates to regulations, the current rift has widened to an extent that the finance ministry has sought formal consultations with the governor in what is one step short of invoking Section 7 of the RBI Act, a provision that has never been used.
+
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+
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The government has been pushing RBI to address its concerns related to providing support to non-banking finance companies, ravaged by the impact of defaults by IL&FS, in addition to addressing the credit needs of small businesses and reviewing the prompt corrective action (PCA) framework dealing with weak banks.
+
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+
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==2014, PM Manmohan Singh: Governor must heed govt==
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F07&entity=Ar00308&sk=C7215202&mode=text  Guv must heed govt, Manmohan said in ’14, November 7, 2018: ''The Times of India'']
+
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+
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+
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The dynamic between the RBI and the government is one of give and take but if the finance minister insists on a certain course of action, his view will need to prevail, former PM Manmohan Singh has said in his daughter Daman Singh’s book “Strictly Personal: Manmohan and Gursharan”.
+
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+
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Recalling his tenure at the central bank, Singh says, “There is always give and take. I had to take the government into confidence. The governor of the Reserve Bank is not superior to the finance minister. And if the finance minister insists, I don’t see that the governor can refuse, unless he is willing to give up his job.”
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+
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Singh’s comments in the 2014 book are significant in the context of tensions between the Centre and RBI governor Urjit Patel amid heated commentary on the autonomy of the central bank. Singh says that after recording a divergent point of view, the governor can insist on directions from the government which would then need to be followed.
+
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+
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+
−
'''Singh speaks of Caparo, tension with then FM Pranab Mukherjee'''
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+
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Singh speaks of tensions with then finance minister Pranab Mukherjee over the move of the Londonbased Caparo group, in which business magnate Swraj Paul and his family held a majority share, to buy shares of Escorts Group. The UK-based business initiated the purchase of shares even before the RBI granted it permission. The RBI informed the government that it intended to reject Caparo’s application.
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+
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The book notes that the government of the day, however, did not have any misgivings and asked the RBI to grant permission, which it did. The matter went to court and the Supreme Court finally held the government’s order to the RBI and the permission granted by the central bank to be valid.
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+
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Asked about the case, Singh says, “Well, it was a situation that brought me in conflict with the government. I have given the view of the Reserve Bank, but said the government could always overrule it. This was a government scheme... Ultimately, it was resolved by the government giving a directive to the RBI.”
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+
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Singh makes it clear that the government would have liked the RBI to have acted on its own with regard to the application under a portfolio investment scheme for NRIs. But he said the RBI did not act until the explicit approval of the Cabinet Committee on Political Affairs was conveyed to the central bank. In a second case the book refers to, Singh had strong reservations over the application of the Bank of Credit and Commerce International to open a couple of branches in India. Permission was almost granted when Charan Singh was PM and was finally cleared by the Congress government in 1983.
+
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The government, unhappy with the RBI’s power to issue bank licences, sought to take these powers away. “I sent my letter of resignation to Pranab Mukherjee and the PM. Later, I managed to persuade Mrs Gandhi that the Cabinet decision was not proper... they dropped the idea,” Singh says.
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+
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==10 flash points between Govt., RBI: 2017-18==
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[[File: 2017, 2018- tensions between the Government and the RBI under Patel, a chronology; 2019, Nov- The RBI’s Central board of directors.jpg|2017, 2018: tensions between the Government and the RBI under Patel, a chronology <br/> 2019, Nov: The RBI’s Central board of directors <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F19&entity=Ar02902&sk=637D344F&mode=text  Sidhartha & Mayur Shetty  November 19, 2018: ''The Times of India'']|frame|500px]]
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[[File: 10 flash points between Govt., RBI- 2017-18- Part I.jpg|10 flash points between Govt., RBI- 2017-18- Part I <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F30&entity=Ar02205&sk=E9E288E4&mode=image  October 30, 2018: ''The Times of India'']|frame|500px]]
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[[File: 10 flash points between Govt., RBI- 2017-18- Part II.jpg|10 flash points between Govt., RBI- 2017-18- Part II <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F30&entity=Ar02205&sk=E9E288E4&mode=image  October 30, 2018: ''The Times of India'']|frame|500px]]
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'''See graphics''':
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+
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''2017, 2018: tensions between the Government and the RBI under Patel, a chronology <br/> 2019, Nov: The RBI’s Central board of directors''
+
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+
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''10 flash points between Govt., RBI- 2017-18- Part I''
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+
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''10 flash points between Govt., RBI- 2017-18- Part II''
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+
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+
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===Points of friction===
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F02&entity=Ar00508&sk=4933A620&mode=text  Sidhartha, ‘RBI’s refusal to engage forced govt to mull extreme legal step’, November 2, 2018: ''The Times of India'']
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[[File: Friction between the Government and the Reserve Bank of India- Part I.jpg|Friction between the Government and the Reserve Bank of India- Part I <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F12%2F11&entity=Ar02003&sk=B8EACFF5&mode=image  December 11, 2018: ''The Times of India'']|frame|500px]]
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[[File: Friction between the Government and the Reserve Bank of India- Part II.jpg|Friction between the Government and the Reserve Bank of India- Part II <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F12%2F11&entity=Ar02003&sk=B8EACFF5&mode=image  December 11, 2018: ''The Times of India'']|frame|500px]]
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'''See graphics''':
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+
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''Friction between the Government and the Reserve Bank of India- Part I''
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''Friction between the Government and the Reserve Bank of India- Part II''
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'' ‘Guv Patel, Team Not Happy With An Assertive Board’ ''
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The Modi government was driven to consider the extreme step of invoking the never-before-used Section 7 of the RBI Act by central bank governor Urjit Patel’s reluctance to engage with stakeholders, according to highly placed sources in New Delhi. “He was scarce and unavailable to bankers, industry and market players even on matters of pressing concern. We were left with no choice. It was the only way we could bring the central bank to the table,” one person close to the development told TOI.
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+
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This confirms TOI’s exclusive report of Monday that tensions between the Patel-led RBI and the government had “come to a head” because the two were not only not able to see eye-to-eye on a host of issues, there had also “been an almost complete breakdown in communication” between them.
+
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+
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+
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'''RBI didn’t make public decisions taken at last board meeting'''
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+
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The move could be significant as a consultative process sets the stage for a government to issue directions to the RBI if there is no agreement,” the report added.
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+
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No government has invoked Section 7 of the Reserve Bank of India Act of 1934 in the central bank’s 83-year history. The Section says, “The central government may from time to time give such directions to the bank as it may, after consultation with the governor of the bank, consider necessary in public interest.”
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+
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The Section 7 reference to RBI was the first formal step towards discussing a troika of concerns with RBI — credit flow, liquidity, and problems facing medium and small businesses — failing which the central bank would have to face the “legal instrument of last resort”, which would be tantamount to a vote of no-confidence in the gover nor.
+
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+
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The finance ministry issued a carefully-worded statement saying the government and the RBI should be “guided by public interest and the requirements of the Indian economy”.
+
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+
−
The government had hoped that RBI would go by the board’s collective view instead of the governor and his deputies charting the course of the financial sector by themselves. But the central bank — which also doubles up as regulator for banks and some market segments — did not seem to go by the view of the directors. Among the 18 directors on the central board, 11 are independent, with five RBI officials and two finance ministry bureaucrats making up the complete cast.
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+
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At last week’s board meeting, it was decided that four decisions that had been taken would be made public. However, RBI, which it now appears, had reluctantly acquiesced into the majority decision, decided otherwise and made no disclosure about the “unanimous” calls. The radio silence came as a surprise because the directors had left the meeting convinced that RBI officials were on the same page.
+
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+
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At the marathon meeting, which had over 20 items on the agenda, the RBI brass had suggested that the issues that could not be decided, would be taken up at next meeting. The meeting was to be held post-Diwali. Accordingly, Patel verged on announcing a specific date but was stalled in his tracks by a top RBI official, who suggested that it was time to wrap up. Thus, the date remained undecided.
+
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+
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In fact, RBI’s announcement of November 19 as the date when the board would meet next, came only after some independent directors, frustrated by the delay, forced the management on Wednesday to take a decision, said sources. While the government has faced flak for nominating S Gurumurthy and Satish Marathe on RBI’s central board, as well as removing Nachiket Mor, people close to the decision said the move was necessary and aimed at turning it from merely being a rubber stamp to a body which could hold its own while engaging with the bank leadership.
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This was a significant turn. For over the years, it was the Central Committee of the Board which had become the “real” decisionmaking body with the board starving itself of powers to regulate by delegating those to the CCB.
+
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+
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The sudden power shift, with the board asserting itself and demanding a say, does not seem to have gone down well with the RBI brass, prompting howls of protest about government interference, said a top official who has been watching the evolving dynamics on Mint Road.
+
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+
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Sources said that at the last board meeting, financial services secretary Rajiv Kumar made a detailed presentation on the need to align Indian standards with global norms instead of stiffening them unnecessarily. The suggestion was an attempt to convince RBI to tweak its rules for capital and PCA. There were also complaints about liquidity shortage and Gurumurthy flagged the concern about inadequate fund availability for small businesses.
+
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+
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While most of the board, including corporate sector representatives agreed with the view, RBI representatives, supported by some of the independent directors, did not agree.
+
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+
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===2017, 2018: tensions under Patel ===
+
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F29&entity=Ar00302&sk=ECF78AAA&mode=text  Sidhartha & Mayur Shetty, Tensions between Patel-led RBI, govt coming to a head?, October 29, 2018: ''The Times of India'']
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+
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In New Delhi and Mumbai’s corridors of power and money, the growing schism between the government and the RBI, and particularly its governor Urjit Patel, has been the subject of much talk since the early months of this year.
+
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+
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During this time, not only have the two not seen eye-to-eye on a host of issues, there has been an almost complete breakdown in communication between the government and RBI.
+
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+
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The simmering differences have now come to a head with RBI’s deputy governor Viral Acharya – who is widely seen to have been brought in by Patel from his professorial position in New York University – on Friday clearly hinting at government interference and emphasising the need for autonomy (TOI had front-paged his remarks in its October 27 edition).
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+
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The tension has triggered fevered speculation about Patel’s fate. Not only does he appear highly unlikely to get an extension beyond the threeyear term that ends next September, questions have arisen over his continuance. Patel did not respond to a message from TOI.
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Some people in the NDA government have gone so far as to acknowledge in private that “even Raghuram Rajan was better than this” — and Patel’s predecessor didn’t leave on the best of terms.
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+
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''Govt, RBI clashes on at least 6 issues in ’18 alone''
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+
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A person in the NDA government told TOI a few months ago, “After Rajan, it’ll look bad if Patel is asked to go.” And people who have a sense of Patel’s thinking say that he knows the government won’t keep him on beyond his current term, so he doesn’t really care about being in its good books.
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+
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In 2018 alone, there have been at least half-a-dozen issues on which the two have taken opposing stands. While the spat began with the government unhappy with the inflation-focused RBI for not cutting interest rates – and even raising them – it spilled over into regulation, something the central bank believes is its exclusive domain.
+
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+
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RBI’s February 12 circular on classification of non-performing assets and norms of loan restructuring was the next flashpoint. The government saw it as overly harsh, and indeed it drove all but two staterun lenders into the red.
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Around the same time, as the Nirav Modi fraud broke, the government hit out at RBI on supervision, drawing an almost-immediate rebuttal with Patel seeking more powers to oversee public sector banks so that they are at par with their private sector peers.
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+
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In addition, the government has been insisting that RBI step in to provide relief to non-banking finance companies (NBFCs), which are grappling with a cash crunch after IL&FS defaulted on repayments. The central bank has refused to play ball.
+
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+
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What has also irked the central bank brass is the way in which Nachiket Mor was removed from the RBI board more than two years before his term was to end without formally informing him. Mor’s removal was seen to be linked to his vocal opposition to the government's demand for a higher dividend.
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+
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In his strongly worded speech late last week, RBI deputy governor Viral Acharya said, "Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution".
+
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+
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Patel is said to have virtually been incommunicado for the past three days, heightening suspense ahead of Monday's meeting of the RBI board, the second such interaction in less than a week. Last week’s meeting was stormy by most accounts with recently-nominated director and SJM activist S Gurumurthy seeking RBI’s intervention to help small businesses, while government nominees made a detailed presentation on the need to bring capital norms in line with global standards instead of making them stiffer. The change is seen to be crucial to get weak banks that are now under RBI’s prompt corrective action out of the classification. This would lift some of the curbs on their lending and expansion.
+
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+
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In remarks made on Saturday that were seen to be in response to Acharya’s, although he didn’t name RBI, finance minister Arun Jaitley said regulators need to have wide-ranging high quality discussion with all stakeholders. “I think, for any regulatory mechanism, stakeholder consultation has to be of a very high quality, which will probably lead to a revisiting of traditional thoughts and opinions. And that’s why, (when) several regulators now publish their approach papers or tentative drafts, they hold hearings, meet individuals, meet groups of stakeholders together and improve upon what’s being said.”
+
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+
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A separate payments regulator has been another friction point with RBI stating its position publicly on why it did not support the move. In fact, it went to the extent of releasing its dissent note on a separate regulator on its website.
+
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+
−
People in the government said the tension should not be seen through a government versus regulator prism. They argued that the onus of taking the board along rests with the governor.
+
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+
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They also denied it was trying to encroach on RBI’s turf, but added that institutional autonomy should be a means for achieving faster growth rather than an end in itself.
+
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+
−
===2018, Nov: The appearance of a truce===
+
−
[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F12%2F11&entity=Ar00314&sk=1E299772&mode=text  Sidhartha, RBI resisted acting on Nov board deal, December 11, 2018: ''The Times of India'']
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+
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In the hours that followed the marathon November 19 RBI board meeting, there was a conscious effort – especially by the external directors and government nominees – to paint a picture of cordiality. The impression sought to be conveyed was that the RBI had come around to the government’s way of thinking on several key issues.
+
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+
−
But the ceasefire proved ephemeral. A committee which was to be constituted by the RBI and government to review RBI’s capital reserves has yet to see the light of day.
+
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+
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Similarly, when the RBI’s Board for Financial Supervision (BFS) met last week, it did not consider the government’s demand for a review of the PCA (prompt corrective action) framework.
+
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+
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+
−
'''RBI-govt communication breakdown again evident'''
+
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+
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Many in the government believed that RBI, led by governor Urjit Patel, was “circumventing” board decisions despite the fact that they had been communicated through a formal statement after the November 19 meet. They had earlier pointed out that Patel and his deputies had abruptly wrapped the October 23 board meeting and refused to disclose even the decisions on which there had been an apparent consensus.
+
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+
−
That Patel was not at ease with the government’s push for a review of the ECF was evident from his statement to a parliamentary panel (reported by TOI on November 27) that the RBI’s current level of reserves were necessary as a buffer against international volatility and to maintain creditworthiness.
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At the next board meeting of the central bank on December 14, the government was expected to ask for a relook at RBI governance structure, with greater oversight by the board. There was a view in the government that the RBI had in the past kept the board out of the picture and taken key decisions in committees packed with hand-picked members.
+
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+
−
While breaking the story about the stand-off between the RBI and the government TOI had said there had been a “complete breakdown in communication” between the two.
+
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+
−
===The big issues: from IBC to Sec 7===
+
−
[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F12%2F11&entity=Ar02000&sk=F4E39ABC&mode=text  Clash course: From IBC to Sec 7, December 11, 2018: ''The Times of India'']
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+
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+
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''RBI’s Feb 12 Diktat That Patel Wouldn’t Dilute Put Govt, PSBs On Sticky Wicket''
+
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+
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A key reform measure — the Insolvency and Bankruptcy Code (IBC) — was the trigger for the RBI’s February 12 circular, which turned out to be an inflection point in the relationship between the government and the central bank.
+
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+
−
On February 12, the RBI did away with all restructuring scheme, which effectively gave borrowers more time to repay. The central bank’s rationale was that now there was a new law that enables banks to recover money and there was no need to kick the can further down the road. This put the government — the owner of public sector unit (PSU) banks — in a spot as PSU banks now needed more capital then envisaged. Loans had to be classified as defaults before being referred under the IBC and bad loans did soar as delayed repayments were not condoned. While the Centre did not attack the February 12 circular directly, it used the Nirav Modi scam, which broke soon after, to criticise the central bank.
+
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+
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Patel, in a speech at Gandhinagar in March 2018, hit out at the government stating that “success has many fathers, failures none. Hence, there has been the usual blame game, passing the buck, and a tonne of honking”. He then listed out seven legislative provisions that ensured that the RBI did not have much of a say in PSU banks. While the February 12 circular was a reform measure aimed at cleaning bad loans, its timing turned out to be disastrous. Banks were hit by a triple whammy — bond losses due to rising rates, over Rs 20,000-crore provision for Nirav Modi/Gitanjali accounts and additional provisions for non-performing assets (NPAs). Overall PSU bank losses crossed Rs 60,000 crore.
+
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+
−
Many in the finance ministry were upset as the high NPAs triggered the imposition of prompt corrective action (PCA) on half the public sector banks and scuppered all plans of boosting growth through increased lending. Ministry officials compared the RBI action on PSU banks of forcing a patient to run a marathon when he was not fully out of the ICU.
+
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+
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What spoiled relations further was Patel’s refusal to engage with ministry officials or even other ministers. Nitin Gadkari, minister of road transport and highways, said in a forum addressing businessmen that his personal experience of dealing with the RBI was not good. Other ministers are known to have complained after filing to to get an audience with the governor.
+
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+
−
It was ultimately the differences over NPA classification that led the government to the path of Section 7 of the RBI Act, which empowers the government to give directions to the central bank. When the power producers challenged the RBI’s circular in the Allahabad high court, the government which was a party said that it did not have any objection. It was at this point that the court observed that the government could consider giving directions to the RBI on the issue. While the government did use the Section 7 threat, it was on a host of issues and not just non-performing assets.
+
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+
−
=== Dec/ Gov. Urjit Patel resigns ===
+
−
[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F12%2F11&entity=Ar00311&sk=44E0E5AB&mode=text  Mayur Shetty, Sidhartha & Surojit Gupta, After ‘truce’, Urjit stuns govt; is 1st guv post-reforms to quit RBI, December 11, 2018: ''The Times of India'']
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[[File: In Dec 2018, Urjit Patel resigned, becoming independent India’s second governor to quit before the expiry of his term.jpg|In Dec 2018, Urjit Patel resigned, becoming independent India’s second governor to quit before the expiry of his term <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F12%2F11&entity=Ar00311&sk=44E0E5AB&mode=text  Mayur Shetty, Sidhartha & Surojit Gupta, After ‘truce’, Urjit stuns govt; is 1st guv post-reforms to quit RBI, December 11, 2018: ''The Times of India'']|frame|500px]]
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'''What''': Reserve Bank of India (RBI) governor Urjit Patel resigned from the post on Monday citing ‘personal reasons’. His term was to end in September 2019. One of RBI’s deputy governors may take charge as the interim head till government finds a successor. The names doing the rounds for the next governor include Subir Gokarn (executive director IMF), SC Garg (economic affairs secretary) and Rajiv Kumar (secretary, financial services).
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+
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'''History''': Patel is independent India’s second governor to quit before the expiry of his term over differences with the finance minister. Benegal Rama Rau, RBI’s second governor, had quit in 1957 after complaining about ‘rude’ finance minister TT Krishnamachari. RBI’s first governor, Osborne Smith, an Australian, had also quit in 1937 for not toeing the British government line.
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+
−
'''Why'''? Differences with the Centre over RBI’s decisions and its functions may have prompted the resignation. Government and RBI were not on the same page (and the differences were public) on issues like the use of RBI’s surplus reserves, handling of weak banks, funds for shadow banks, and interest rates. For the first time in history, the government had invoked its powers to instruct the central bank on certain issues. A sudden overactive RBI board (filled with government nominees), which used to be only an advisory body, could be another factor. “This should be seen as a statement of protest,” said former RBI governor Raghuram Rajan.
+
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+
−
'''So what'''? It’s not normal. Patel is the first governor since the 1990s to have quit before completing his term of three years. Raghuram Rajan says, “All Indians should be concerned about Governor Patel's resignation.” It’s not a good sign for RBI’s autonomy. An independent central bank is a check on the government, who may be keen to push for an easier way to prosperity for short-term gains. The move will also impact foreign investors’ perception of the Indian economy.
+
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+
−
'''Why now'''? There are various theories doing the rounds. Theory 1: A board meeting was slated for December 14 in which he would have been forced to endorse decisions he didn’t favour. Theory 2: He offered to quit on November 9, the day he met PM, but was asked to stay till polls.
+
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+
−
=Issues=
+
−
==2016/ Questions Post-Demonetisation ==
+
−
[http://indiatoday.intoday.in/story/demonetisation-rbi-banks-atm-modi-cash-crunch/1/834876.html Usha Thorat , The promise to pay the bearer “India Today” 15/12/2016]
+
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+
−
"The RBI's responsibility is to ensure enough clean currency notes in the denominations required for day-to-day transactions in all parts of the country," said former deputy governor of the Reserve Bank of India,Usha Thorat.
+
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+
−
There are many questions people are asking on the demonetisation move and the currency situation in the country. Some of the top-of-the-mind ones are quoted below, and these are my answers:
+
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+
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How does the RBI decide how much currency to print? What say does the Centre have in such a decision?
+
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+
−
The RBI's responsibility is to ensure enough clean currency notes in the denominations required for day-to-day transactions in all parts of the country. The RBI makes an annual assessment of the demand for currency. Currently, currency constitutes about 12 per cent of GDP. Hence if the pace of digitisation is the same as the growth in GDP, currency demand should be at least equal to GDP growth (in nominal terms) unless we are pushing for a higher pace of digitisation. Also, seasonal factors affect currency demand-we witness higher demand during harvesting time, festival time and even election time. Finally, there is replacement demand, i.e., soiled notes have to be taken out, and good, clean notes put back in circulation. After making the estimate and deciding on the denomination-wise requirement, indents are placed with the note presses. This exercise is done in consultation with the Government of India.
+
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+
−
Why couldn't the RBI have printed notes faster? If the Indian presses couldn't cope with the print load, why not do it abroad?
+
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+
−
The trade-off is between ensuring secrecy and having sufficient time to print and stock for remonetisation. The reports seem to suggest that 2 billion notes of Rs 2,000 were got ready prior to announcement. Against notes in circulation of over 15 billion pieces of Rs 500 and 6 billion of Rs 1,000, the annual supply from both the presses together was one-third in each of these two denominations in the past two years. Since the announcement, it is presumed the note printing presses have stepped up production of the Rs 500 and Rs 100 notes. Importing notes to remonetise could be thought of, but the capacity to print currency notes globally is limited and restricted to a few companies. Further, there would be considerable lead time involved. It may not serve the purpose.
+
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+
−
What was the total cash in circulation prior to demonetisation? What was the amount held as cash reserve ratio (CRR) by banks and the RBI? And who holds it, and is it held in the form of cash?
+
−
 
+
−
Prior to demonetisation, currency or cash in circulation (as on November 4) was Rs 17.7 lakh crore; as on November 25, the figure dropped by Rs 6.1 lakh crore to Rs 11.6 lakh crore. Currency in circulation is a liability of the RBI. It is held either by the public or by banks that have some currency in their vaults; the latter forms a very tiny part of currency in circulation. Banks do not hold cash reserves in the form of currency-these are held as deposits with the RBI and are reflected as liabilities on the RBI balance sheet.
+
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+
−
How does the RBI invest its reserves? What does it do with the profit it generates from this?
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+
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The RBI earns income from its investments in various assets. The major component of the RBI's assets-roughly 72 per cent-represents the foreign currency assets held in permitted investments abroad. Gold constitutes four per cent of the RBI's assets while Government of India securities account for 22 per cent. In 2015-16, the RBI income was Rs 80,870 crore, of which Rs 74,924 crore was interest income. Interest on foreign securities accounted for 32.5 per cent of interest income and that on government securities 57.5 per cent. Section 47 of the RBI Act states that after making provisions for bad/doubtful debts, depreciation in assets, contribution to the staff and superannuation fund and for all matters for which provisions are to be made by or under the Act or that are usually provided by bankers, the balance of the bank's profits is to be paid to the Central government. Printing of currency notes, employee costs and agency charges (paid to banks to conduct government business) accounted for 84 per cent of RBI expenditure in 2015-16. The surplus profits transferred to the government for the year was Rs 65,876 crore and represented 99.99 per cent of gross income less expenditure.
+
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+
−
At the end of the demonetisation drive, what happens to the extinguished cash? Does it hand over this money to the GoI to spend as it wishes or retain it as profit after lessing the cost to print new notes?
+
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+
−
At the end of the demonetisation drive, the currency notes returned to the RBI will be shredded, presumably after checking for fakes. The RBI's supply of notes to the public may or may not be equal to what was in circulation before the November 8 measure. While restrictions cannot be placed indefinitely on cash, temporary limits can be justified citing the time taken to print the required amount of currency. Regarding the RBI's liability on demonetised notes that have not been exchanged/deposited in bank accounts, the central bank governor, in a recent press conference, stated that it continues in the bank's balance sheet as of now. This is because the last date for surrender at the RBI counter has not yet been notified (March 31 was mentioned as a date in the PM's speech). There is a view that the RBI's liability ceases only when the last date for exchange at the bank's counter is notified through a legislative process. At such a juncture, to the extent liabilities are extinguished, assets could be contracted through retirement of government debt held by RBI and/or creating a reserve at the bank to the same extent. It may not be prudent to transfer the amount to the government without assessing the macroeconomic implications, and the monetary conditions required, for achieving the inflation target set by the RBI.
+
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+
−
Are the new currency notes harder to counterfeit?
+
−
 
+
−
One of the objectives of demonetisation is to guard against counterfeiting. Several security features are built into the notes to prevent counterfeiting. The government has announced that the new notes contain several new features that were not there earlier and would be difficult to forge. Other measures taken by the RBI to enable detection of forged notes are to improve awareness among the lay public on how to detect forged notes and to encourage shops and retail outlets to instal note-sorting machines. All banks are mandated to sort out the notes received by them over the counter through a note sorting machine that can detect forgery and ensure that they issue only genuine notes back into circulation.
+
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+
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Usha Thorat is a former deputy governor of the Reserve Bank of India
+
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+
−
=Monetary Policy Committee, 2016=
+
−
[http://www.thehindu.com/business/Economy/centre-notifies-amended-rbi-act-to-usher-in-monetary-policy-committee/article8780360.ece ''The Hindu''], June 28, 2016
+
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+
−
The Centre brought the Monetary Policy Committee (MPC) one step closer to reality by notifying the changes made to the Reserve Bank of India (RBI) Act in June 2016.
+
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+
−
The six-member Committee — tasked with bringing “value and transparency to monetary policy decisions” — will comprise three members from RBI, including the Governor, who will be the ex-officio chairperson, a Deputy Governor and one officer of the central bank.
+
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+
−
'''Composition'''
+
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+
−
The other three members will be appointed by the Centre on the recommendations of a search-cum-selection committee to be headed by the Cabinet Secretary.
+
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+
−
“These three members of MPC will be experts in the field of economics or banking or finance or monetary policy and will be appointed for a period of four years and shall not be eligible for re-appointment,” according to the statement.
+
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+
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The Committee is to meet four times a year and make public its decisions following each meeting.
+
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+
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[[Category:India |R ]]
+
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[[Category:Economy-Industry-Resources |R ]]
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+
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+
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[[Category:India |R ]]
+
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[[Category:Economy-Industry-Resources |R ]]
+
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+
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+
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[[Category:India |R ]]
+
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[[Category:Economy-Industry-Resources |R ]]
+
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+
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=Policy reviews=
+
−
2014: ''' RBI shifts to bi-monthly policy review '''
+
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+
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TIMES NEWS NETWORK
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+
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[http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=TOINEW&BaseHref=CAP/2014/03/12&PageLabel=25&EntityId=Ar02509&ViewMode=HTML ''The Times of India'']
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Mumbai: The Reserve Bank of India will shift to a system of announcing its policy statement bi-monthly with the first such policy being announced on April 1, 2014. Bankers widely expect RBI to hold on to rates given that pressure on inflation is easing and the rupee has also been firming up.
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+
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Until the mid-90s, RBI had only two monetary policy reviews a year. After Bimal Jalan took charge as governor in 1997, he introduced quarterly reviews. His successor Y V Reddy introduced a mid-quarter review, which resulted in an announcement every 45 days.
+
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+
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A panel headed by RBI deputy governor Urjit Patel had recommended that the central bank monetary policy committee meet every two months to review rates.
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+
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=Reserves=
+
−
==What is the appropriate level of reserves?==
+
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[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F16&entity=Ar02414&sk=A414CAD4&mode=text  November 16, 2018: ''The Times of India'']
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+
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+
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'''HOW MUCH RESERVES ARE ENOUGH FOR RBI?'''
+
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+
−
RBI has accused the govt of trying to raid its coffers to bolster its revenues, which is one of the flashpoints in high-profile turf battle. The finance ministry has rejected the claim and suggested that there is a need to discuss how much capital RBI needs to deal with contingencies
+
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+
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+
−
'''Clarification'''
+
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+
−
The Centre clarified that it wasn’t going to raid Reserve Bank of India’s reserves for Rs 3.6 lakh crore of ‘free money’ but it also said that it was in discussion to fix ‘appropriate economic capital framework’ of the central bank
+
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+
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+
−
'''Conditions apply'''
+
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+
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The framework the government is talking about is basically about how much capital RBI needs for its operations and how much of the surplus it should pass on to the government. This essentially means that Centre may not have asked for a specific amount (Rs 3.6 lakh crore) but it wants to ‘fix’ the process and that may end up giving it even more than that
+
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+
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+
−
'''Why fix?'''
+
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+
−
The government believes that RBI is sitting on much higher reserves than it actually needs to tide over financial emergencies that India may face. Some central banks around the world (like US and UK) keep 13% to 14% of their assets as a reserve, compared to RBI’s 27% and some (like Russia) more than that. Each central bank assesses its risk and reserve requirements according to its past experience and future likelihood of the scale and kind of crisis
+
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+
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+
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'''Old problem'''
+
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+
−
Economists in the past have argued for RBI releasing ‘extra’ capital that can be put to productive use by the government. Former chief economic adviser Arvind Subramanian had argued for it (he had mentioned Rs 4 lakh crore). The Malegam Committee estimated the excess (in 2013) at Rs 1.49 lakh crore
+
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+
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+
−
'''How much?'''
+
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+
−
RBI’s held total assets worth Rs 36.17 lakh crore on June 30 on its balance sheet. At 27% of this, the central bank would have around Rs 9.7 lakh crore as reserves. If it were to bring it down to 14% as the government probably wants, it would be left with about Rs 5 lakh crore. That means an excess capital of Rs 4.7 lakh crore to be handed over to the government
+
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+
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+
−
'''Why now?'''
+
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+
−
With a general election looming early next year, analysts believe the cash-strapped government is trying to stimulate the economy with a big public spending spree to woo voters, says a report
+
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+
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+
−
'''What next?'''
+
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+
−
The RBI governor, Urjit Patel, some say, has two options: to agree to his employer (the government) or leave the job. RBI deputy governor, in his (now controversial) speech, had referred to the resignation of Argentina’s central bank head for a similar reason of refusing government’s order to transfer the central bank’s reserve to pay foreign debt
+
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+
−
==As in 2018, Mar==
+
−
[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F20&entity=Ar02103&sk=6959637B&mode=text  Mayur Shetty, RBI saves its current reserves, but govt expects more next year,  November 20, 2018: ''The Times of India'']
+
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[[File: RBI's reserves as on March 31, 2018.jpg|RBI's reserves as on March 31, 2018 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F20&entity=Ar02103&sk=6959637B&mode=text  Mayur Shetty, RBI saves its current reserves, but govt expects more next year, November 20, 2018: ''The Times of India'']|frame|500px]]
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The Reserve Bank of India (RBI) has managed to protect its Rs 9.7-lakh-crore reserve kitty with its board agreeing to have a panel determine how much capital it needs to maintain and how much can be distributed from future surplus to the government. The Centre has also not lost as prospects of a higher share of future surplus allows it to budget for a larger chunk of revenues from the central bank in its ‘Vote on Account’ for next year.
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“The RBI board decided to constitute an expert committee to examine the Economic Capital Framework (ECF), the membership and terms of reference of which will be jointly determined by the government and the RBI,” the central bank said in a statement.
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The ECF refers to a formula for deciding the capital adequacy ratio for RBI. This is a positive development for those fearing that the government will tap into existing reserves of the central bank.
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Of the existing reserves, a bulk of the funds are in contingency funds and in revaluation reserves. The contingency reserves, by definition, cannot be touched except in a crisis. To tap revaluation reserves, the RBI will have to sell assets and shrink its balance sheet. This will upset the money supply in the economy. Even if the to-be-constituted committee recommends higher transfers to government, it will result in lesser accretion to reserves and will not deplete the RBI’s balance sheet.
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It was earlier speculated that the Centre might press for the RBI transferring a third of its Rs 9.7-lakh-crore total reserves to the government. The speculation was based on some reports stating that RBI holds over Rs 3 lakh crore of surplus reserves.
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A higher surplus transfer for 2018-19 is likely because the central bank’s earnings are expected to be much more robust than 2017-18. In the current fiscal, the RBI has been intervening heavily in the foreign exchange and bond markets. The central bank’s earnings soar whenever there is forex volatility as it ends up making profits while selling dollars. For 2017-18, the RBI transferred a dividend of Rs 50,000 crore to the government.
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Former governor Raghuram Rajan had proposed a formula-based model for fund transfer to the government. He had also warned against liquidating assets to transfer funds to government, stating that to neutralise the impact, the RBI would have to conduct money market operations by selling bonds. If the government had to issue fresh bonds in order to receive money from the central bank, it would be in the same position as before.
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==2018: the position in other countries==
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[[File: Equity as % of Central Banks' Balance Sheets in major countries, presumably as in 2017.jpg|Equity as % of Central Banks' Balance Sheets in major countries, presumably as in 2017 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F21&entity=Ar02901&sk=34D2A259&mode=text  Sidhartha, November 21, 2018: ''The Times of India'']|frame|500px]]
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'''See graphic''':
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''Equity as % of Central Banks' Balance Sheets in major countries, presumably as in 2017''
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The labour ministry eased the planned restriction on withdrawal of contribution to the employees' provident fund. It said withdrawal can be allowed for housing, major medical treatment for self and family members, medical, dental and engineering educa tion of children, and for their marriage.
  
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The relaxation has also been extended to members who have joined an establishment belonging to or under the central or state government, and become a member of contributory provident fund or old age pension.
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These norms will come into effect from August.
  
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The amendments were made after labour minister Bandaru Dattatreya received representations from trade unions. A government release said the ministry had decided to pay the full accumulations to the credit of a member, including interest up to the date of payment, if he or she fulfils any of the above-mentioned conditions. In February , the ministry had said PF subscribers would not be able to withdraw their provident fund after attaining the age of 54 years, and will have to wait till they are 58 years old.
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Revision as of 08:08, 28 January 2021

This is a collection of articles archived for the excellence of their content.

Contents

Employees' Provident Fund

A critique

As in 2020

Rama Karmakar, January 28, 2021: The Times of India

The EPF, As in 2020
From: Rama Karmakar, January 28, 2021: The Times of India


For a vast number of the salaried, the employee provident fund (EPF) is the only social security net they have. But the EPF rules are such that they tend to discriminate against the young and vulnerable — those who have not yet worked for five years without a break. It took a pandemic to expose how this hurts the private-sector salaried workers most when they have already been hit hard by job loss.

HOW EPF WITHDRAWALS ARE TAXED

Withdrawal of EPF accumulated balance is not taxable if: An employee participating in EPF has rendered continuous service for five or more years;

Or, if before 5 years, the employee’s service has been discontinued on grounds of ill-health, or by contraction or discontinuance of employer’s business or other causes beyond the control of the employee.

In other circumstances, the accumulated balance withdrawn within five years of continuous service is considered as taxable income.

During the Covid-19 pandemic, many employees lost their jobs due to business uncertainties. The following illustration brings out the taxability of EPF withdrawal in different cases/ circumstances (all figures in Rs): As Rohan’s employment was terminated by his employer, the EPF balance withdrawn by him will be exempted from tax. As Rashi voluntarily resigned from employment after working for 2 years, her EPF balance withdrawn would be taxable. For withdrawals in excess of Rs 50,000, tax is usually deducted at source. Roshni, who did not withdraw the EPF amount, can map the accumulated balance to the new employer, in case she continues with EPF. Rahul rendered continuous service of more than five years, so his accumulated EPF would not be taxable. However, the interest that has accrued for the period of two years after cessation of employment would be taxable in his hands.

EPF ADVANCE DURING PANDEMIC

The government has allowed members of the EPF scheme to claim ‘nonrefundable advance’ from their EPF account to the extent of the basic wages and dearness allowance for three months, or up to 75% of the amount outstanding in the EPF account, whichever is less. This has been a very effective scheme and a timely intervention to address liquidity issues faced by employees during the pandemic. The FAQs released by provident fund authorities have clarified that such withdrawals will not be taxable. However, the corresponding amendment in the Income Tax Act to ensure that the non-refundable advance received is not taxable is still awaited.

EXEMPTION DESIRABLE FOR SOCIAL SECURITY WITHDRAWALS

As compared to developed countries, India does not have a strong social security net to protect workers in the event of unemployment. Globally, many countries provide unemployment insurance to employees upon satisfaction of specified conditions. For instance, in the US, those who are unemployed due to no fault of their own are eligible to claim unemployment insurance. In Canada, employment insurance provides benefits to individuals who have lost their jobs and are available for work but cannot find a job. No such social security support is available in India. And, taxation of EPF withdrawals would leave a lower amount in the hands of employees in times of need.

For taxing EPF withdrawals, the limit of five years may be retained. However, exemption from tax may be considered if withdrawals are made before five years to meet certain contingencies/life goals such as purchase of residential house, marriage, education of children, medical expenses/ emergency, pandemics such as Covid-19 etc.

The government is in the process of implementing the new Labour Codes, likely to be effective from April 1, 2021. One of the important aspects of the code is to provide ‘social security for all’. In keeping with this spirit, there is a need to amend the tax laws also, to no longer subject EPF withdrawals to tax. The writer is Tax Partner at EY India. Ankur Agrawal, senior tax professional with EY, also contributed to this article (Views expressed are personal)

2016/ SC: employees can raise contributions without cut-off date for eligibility

Prabhakar Sinha, SC ruling enables massive rise in pvt sector pensions, November 22, 2017: The Times of India

The EPF scheme, the amendment of 1996 and the SC-mandated scheme
From: Prabhakar Sinha, SC ruling enables massive rise in pvt sector pensions, November 22, 2017: The Times of India

See graphic:

The EPF scheme, the amendment of 1996 and the SC-mandated scheme


A Supreme Court order of October 2016 that directed the Employees’ Provident Fund Organisation (EPFO) to revise the pension of 12 petitioners under the employee pension scheme (EPS).

The pension scheme, which is part of EPF, has over 5 crore members. Every employee in the organised sector contributes 12% of basic salary and dearness allowance to EPF. The employer makes a matching contribution. Of the employer’s contribution, 8.33% goes to the EPS. When people withdraw their EPF after a job switch or during unemployment, the EPS is not given out. It’s payable only after superannuation.

There is also a ceiling on EPS contributions. The current cap on salary (basic + DA) is Rs 15,000 per month so, the maximum one can contribute to the EPS is 8.33% of Rs 15,000, which is Rs 1,250 a month.

Between July 2001 and September 2014, the EPS salary cap was Rs 6,500 a month, which translated to a maximum contribution of Rs 541.4 a month.

SC ruling to benefit 5 crore EPFO members

Prior to 2001, the ceiling was Rs 5,000 which yielded a maximum contribution of Rs 416.5. So how did 62-year-old Kohli get a pension of over Rs 30,000 a month with such a meagre contribution to the pension fund?

It took a long struggle in which he cited an important amendment to the EPS. In March 1996, the EPS Act was amended to allow members to raise pension contribution to 8.33% of full salary (basic + DA) irrespective of what the salary is. This raised the pension multiple times.

However, for a decade hardly anybody opted for higher contribution. In 2005, following media reports, including in TOI, several private EPF fund trustees and employees approached EPFO with the demand to remove ceiling on their EPS contribution and raise it to their total salary. The EPFO rejected the demand claiming that response should have come within six months of the 1996 amendment.

Cases were filed against EPFO in various high courts. By 2016 all except one high court ruled against EPFO stating that the six-month deadline was arbitrary and the employees must be allowed to raise their pension contribution whenever they wish to. The case went to Supreme Court which, in two separate rulings in 2016, ruled in favour of the employees’ right to raise their contributions to their pension fund without imposing any cut-off date for eligibility.

It took another year for the EPFO to implement the court order following a strong fight put up by petitioners like Kohli. Finally, from November 2017, Kohli started getting higher pension.

To raise his monthly pension from Rs 2,372 to Rs 30,592, Kohli had to pay Rs 15.37 lakh as the difference between EPS contribution he had made while in service and the contribution he would have made if he was allowed to raise it to his full salary. But he also got Rs 13.23 lakh as arrears for the higher pension that he was entitled to for four years spent in retirement before November 2017. So, by paying Rs 2.14 lakh

additionally, Kohli was able to raise his lifelong pension by nearly 13 times. In case he passes away before his wife, she will get 50% of Kohli’s last drawn pension till she is alive.

Are all 5 crore members of EPFO now eligible for higher pension if they opt to raise their EPS contribution? Yes, all those who joined EPFO before September 1, 2014 — the date on which the EPS imposed the Rs 15,000 salary cap — can contribute on their full salary to EPS. They can submit applications to their company and the EPFO and get up to half of their last average monthly salary as pension. Those who joined EPFO after September 1, 2014 and have a salary above Rs 15,000 are not eligible for pension while those starting with salaries lower than Rs 15,000 can contribute to EPS but the cap of Rs 15,000 will kick in when their salary rises.

EPFO is also discriminating against employees who are members of privately-managed EPF trusts (nearly 80 lakh), officially called Exempt Establishments and those who directly contribute to the government-run trust (4.25 crore) called Un-exempt Trusts.

Central provident fund commissioner V P Joy said, “EPS will not be able to give pension to those members whose contributions on higher salary have not been received by EPFO.” The EPFO is denying employees of exempt companies higher pension on the grounds that only 8.33% of up to Rs 15,000 and not their entire PF contribution goes to EPS.

However, two of the 12 petitioners who went to court were from the exempt category. So, a precedent has been set. It’s likely that members of private trusts or the trusts themselves will go to the court to settle the issue. The EPFO’s board of trustees is also likely to discuss the move to bar exempt EPF trusts.

Those who joined EPFO before September 1, 2014 can contribute on their full salary to EPS

Amnesty scheme, 2017

Lubna Kably, India Inc can enrol employees under EPF amnesty scheme, Jan 3, 2017: The Times of India


Cos Have To Pay Only Rs 1 Damages For Each Year Of Default

Companies which have not enrolled their employees as members under the Employee Provident Fund (EPF) scheme will now get a chance to do so, against payment of a minimal damage fee of Re 1per year of default.

Additionally , if the employee wasn't enrolled earlier and hisher share of contribution was not deducted from salary , the employer company had to pay this sum also in addition to the past defaults of its own contribution. Now under the amnesty scheme, only the employer's contribution has to be deposited.

The objective of the amnesty is to ensure enrolment of employees and spread the benefit of the EPF scheme.Companies having 20 or more employees are required to mandatorily enrol those employees under the EPF scheme who have a salary of up to Rs 15,000 per month.The EPF scheme is optional for those drawing a higher salary . However, once an employee opts for the scheme, he or she cannot opt out.

Both the employer and employee are required to contribute 12% per month towards EPF against the employee's basic salary plus dearness allowance. However, under the amnesty , interest at the rate of 12% on the amount due for delayed deposit of the contribution will be payable for the period of delay .This amnesty scheme, which comes into force from January 1, is open until March-end.“The main purpose of the amnesty is to expand coverage of the EPF scheme,“ said a government official.

Arrears in payment of EPF dues is rampant. More than a lakh employers had not deposited PF contributions and the arrears outstanding as of March 31, 2015 was nearly Rs 3,000 crore. “More damaging is that there is an equally large number of companies (especially micro, small & medium enterprises, or MSMs), say in the garment or auto ancillary sector, who do not enrol their employees at all,“ adds the government official.

Sonu Iyer, partner and leader people advisory services at EY India, explains, “Companies that had not enrolled employees under the EPF scheme for the period beginning April 1, 2009 to December 31, 2016 can take advantage of the amnesty scheme by making a declaration to the regional employee provident fund office.“

“The employer will be required to deposit the required sum, which denotes its share of contribution, employee's share of contribution only if deducted from employee's salary but not deposited, interest and a nominal damage charge within 15 days of making the declaration.The biggest largesse under the amnesty is that the company doesn't have to make good the share of the employee's contribution,“ adds Iyer.

After depositing the sums, adetailed return has to be filed with the Regional Provident Fund Commissioner. Employers are eligible to participate in the amnesty only if proceedings under section 7A (inquiries) have not already commenced against them.

However, it is not clear whether the amnesty scheme will cover cases where employees had been enrolled in the EPF scheme but where there was a shortfall in depositing contributions.

EPFO to settle death claims within 7 days

EPFO to settle death claims within 7 days, Nov 02 2016 : The Times of India


Employees' Provident Fund Organisation (EPFO) issued guidelines in Nov 2019 to its field offices to settle death claims in seven days and retirement cases before a worker superannuates from the job, a move which comes days after PM Narendra Modi slammed the labour ministry for the provident fund manager's poor service.

The central provident fund commissioner informed labour minister Bandaru Dattatreya that on the PM's directions, EPFO had issued guidelines to field offices to take “proactive action to settle death claims within seven days and reti rement cases on or before the day of retirement,“ the ministry said.

EPFO coverage for Indians working abroad, 2017

Amit Anand Choudhary, SC cancels engineering degrees given by deemed universities through correspondence course, Nov 3, 2017: The Times of India


HIGHLIGHTS

The apex court restrained educational institutions from providing courses in subjects like engineering, in the distance education mode

With its ruling, the SC affirmed the findings of the Punjab and Haryana high court on the issue

Also with its ruling, the SC set aside a verdict by the Odisha high court, which allowed technical education by correspondence


Indians working abroad can now exempt themselves from their host country's social security scheme and get covered by retirement fund body EPFO, Central Provident Fund Commissioner (CPFC) V P Joy said.

An online facility to avail the benefit has been made functional, he said at a national seminar on 'Fraud Risk Management-The New Initiatives' here. The scheme allows Indian employees the option of not being part of their host country's social security scheme and saves employers from double social security contributions.

The Employees' Provident Fund Organisation, which manages the money in employees provident fund accounts, has entered into an agreement with 18 countries. "We have made the whole process employee friendly. Employees going abroad to work can get a certificate of coverage (CoC). They can apply for the CoC online and can get it too," he told.

Joy said there is a simple one-page application form available on the EPFO's website for the purpose.

"The scheme is of great help for Indian workers going overseas for a limited period of time. The biggest benefit they get from opting for the CoC is that their money is not blocked for a long time in the host country," he said, explaining the benefits of the scheme.

India has operational social security agreements with Belgium, Germany, Switzerland, France, Denmark, Republic of Korea, Grand Duchy of Luxembourg, Netherlands, Hungary, Finland, Sweden, Czech Republic, Norway, Austria, Canada, Australia, Japan and Portugal.

EPFO is one of the largest social security providers in the world, covering 9.26 lakh establishments with more than 4.5 crore members. It provides pension to 60.32 lakh pensioners every month.

Interest rates

Dec 2016: cut to 8.65%

The Times of India, Dec 20 2016

EPFO cuts interest rate to 8.65%

Employees Provident Fund, interest rates, 2010-16; Graphic courtesy: The Times of India, Dec 20 2016


The Employees Provident Fund Organisation (EPFO) recommended a minor reduction in interest rate to 8.65% for the financial year 2016-17 compared to 8.8% in 2015-16 but it still remains the best investment bet given that there is no cap on how much you set aside and the entire corpus remains tax free.

The reduction in interest rate to a four-year low is in line with the falling regime although bank fixed deposit rates have seen a sharper decline due to demonetisation of Rs 500 and Rs 1,000 notes. State Bank of India, for instance, has lowered fixed deposit rates by 15 basis points (100 basis points equal one percentage point), while on deposits of over Rs 1 crore (known as bulk deposits) rates have been slashed by up to 190 basis points. In any case, with the RBI singalling a shift towards a low rate regime, the government was forced to pare returns on small savings schemes.

Trade unions were demanding that EPFO central board headed by labour minister Bandaru Dattatreya retain the rates at least year's level, something that did not appear feasible given the retirement agency's projections. At 8.8%, EPFO would have faced a deficit of Rs 384 crore, while at 8.65% it will have a surplus of Rs 296 crore.

“The decision was arrived at after detailed consultations with all stakeholders. With consensus we have taken this decision,“ Dattatreya said in Bengaluru after the meeting.Interest income from PF investments for 2016-17 has been estimated mainly on the basis of interest income received or receivable in this financial year, including surplus of Rs 410 crore from previous year, an official said.

“In 2015, the interest rate decided was at 8.8%. At that time, along with the income of EPFO, the surplus from the previous year was Rs 1,600 crore. This year, along with the income, the surplus available is Rs 410 crore,“ Central Provident Fund Commissioner V P Joy said.

The recommendation of the EPFO board needs to be ratified by the finance ministry , which notifies the rates. Last year, the finance ministry had suggested a reduction but was forced to go with the board's decision after public uproar.

Erstwhile employees must pay tax on interest

November 16, 2017: The Times of India


HIGHLIGHTS

According to a notification issued, when an employee resigns from his job, his EPF account continues to be "operative" and earns an interest until he applies for withdrawal.

On the other hand, if an employee retires after 55 years of age, then post three years from the date of retirement, his EPF account is treated as "inoperative" and does not earn any interest.

Tax laws provide that interest credited to an employee provident fund (EPF) account after an individual ceases to be in employment+ is taxable in his hands in the year of credit.

In its order, the Bengaluru bench of the Income-Tax Appellate Tribunal (ITAT) also upheld this I-T provision while adjudicating the matter of a retired employee+ . Post-employment, whether on account of termination, resignation or retirement, several employees continue to maintain their EPF accounts and earn interest on the same. Unfortunately, they are usually not aware of the tax implications on the interest accretion in the fund after termination of employment," says Amarpal Chadha, partner and India mobility leader at EY India. Investment consultants point out that even in the case heard by ITAT, the taxpayer had mistakenly thought that the interest which had accrued to his EPF account post his retirement was not taxable.

This ITAT ruling is pertinent not only for retired employees, but also those who have quit employment for various reasons, say, to be an entrepreneur or a homemaker, and have continued to retain a balance in their EPF accounts.

According to a notification issued last November, when an employee resigns from his job or his services are terminated, his EPF account continues to be "operative" and earns an interest until he applies for withdrawal of the accumulated balance or takes up another job and transfers the balance. On the other hand, interest accrual norms are different for a retired employee. If an employee retires after 55 years of age and does not apply for withdrawal from his EPF account or transfer of the balance, then post three years from the date of retirement, his EPF account is treated as "inoperative" and does not earn any interest.

The applicable rate of interest is announced each year. For the recently concluded financial year 2016-17, the interest rate was 8.65% and rates for the current financial year are expected to be announced shortly. In the recent case, the man had retired from a prominent Bengaluru-headquartered software company after 26 years of service, on April 1, 2002, and the total amount in his EPF account then was Rs 37.93 lakh. Nine years later, on April 11, 2011, he withdrew the grown sum of Rs 82 lakh from his EPF account. This amount included interest of Rs 44.07 lakh that had accrued post his retirement till the date of withdrawal.

The retired employee did not offer this interest amount to tax, as he viewed it would be exempt under Section 10 (12) of the I-T Act. During assessment proceedings for financial year 2011-12, the I-T officer sought to levy tax on this amount and the litigation finally reached ITAT's doors.

Based on a reading of Section 10(12) and also the definition of "accumulated balance", the ITAT held: "The exemption is limited to the accumulated balance due and payable to an employee up to the date of his retirement or end of his employment."

ITAT pointed out that the term "accumulated balance due to an employee" is defined as the balance standing to his credit, or such portion of it as may be claimed by the concerned employee under the regulations of the fund "on the day he ceases to be an employee".

Thus, the ITAT agreed that the interest earned postretirement was taxable in the hands of the retired employee. However, it added that the aggregate interest of Rs 44.07 lakh should be taxable in the hands of the retired employee, in the respective financial years in which the interest income actually arose.

Chadha says, "Under the tax laws, the accumulated balance, as it stands on the date of cessation of employment, is considered as an exempt income (subject to satisfaction of certain conditions). Any accreditation in the EPF account after cessation of employment would be taxable income. ITAT, in its recent decision, has also held likewise. Therefore, it is important for employees to consider this aspect while making a decision on retaining their EPF account once their employment ceases."

Rules

PF a/c to be transferred automatically on change of employment

Mahendra Singh, PF a|cs to be automatically transferred on job switch, August 11, 2017: The Times of India


From next month, your PF account will be transferred automatically when you change your job, chief provident fund commissioner V P Joy has said. Joy, who is pushing a slew of initiatives in the Employees' Provident Fund Organisation (EPFO) to make it more worker-friendly , said premature closure of accounts was one of their main challenges, and they were trying to address it by improving services.

“Whenever there is change of job, a lot of accounts are closed; then they (the employees) restart their account later on,“ he added.

“Now we have made Aadhaar compulsory for enrolment. We don't want accounts to be closed. The PF account is the permanent account.The worker can retain the same account for social security,“ Joy added.

“We are trying to ensure transfer of money if one changes jobs, without any application, in three days. In future, if one has an Aadhaar ID and has verified the ID, then the account will be transferred without any application if the worker goes anywhere in the country. This system will be in place very soon,“ he added.

The EPFO has also stepped up efforts to expand coverage, and initial results have been positive. “During the campaign from January to June, more than one crore workers were enrolled. Now, we are trying to retain them by improving services,“ Joy said.

Joy said PF money should be withdrawn only for major purposes like housing, education of children, or serious hospitalisation. “...Only then will people get social security. So, we are now starting a campaign...to educate people that money must be withdrawn only for essential purposes,“ Joy said.

2017: GPF rules liberalised

GPF rules relaxed for govt staffers, March 28, 2017: The Times of India


In a major relief for government employees, the Centre recently relaxed and simplified the General Provident Fund Rules, particularly related to advances and withdrawals by the subscribers.

As per relaxed norms, employees can withdraw up to 90% of their amount for housing needs and 75% for buying vehicles. The definition of education for the purpose of withdrawal of GP Fund has now been widened to include primary, secondary and higher education, covering all streams and institutions.

The withdrawal limit has also been increased from three months' pay or half the amount at credit, to up to 12 months' pay or 34th of amount at credit, whichever is less.

Also this is now admissible to a subscriber after completion of 15 years of service.

2018: Those unemployed for 30 days can withdraw 75%

EPFO members can withdraw 75% funds after 30 days of job loss, June 26, 2018: The Times of India


HIGHLIGHTS

EPFO members can also withdraw remaining 25 per cent of their funds after completion of two months of unemployment

At present, the members can withdraw the funds after two months of unemployment and settle the account in one go


Retirement fund body EPFO decided to give its members an option to withdraw 75 per cent of their funds after one month of unemployment and keep their PF account with the body.

The members would also have an option to withdraw remaining 25 per cent of their funds and go for final settlement of account after completion of two months of unemployment under the new provision in the Employee Provident Fund Scheme 1952.

"We have decided to amend the scheme to allow members to take advance from its account on one month of unemployment. He can withdraw 75 per cent of its funds as an advance from its account after one month of unemployment and keep its account with the EPFO," Labour Minister Santosh Kumar Gangwar, who is also the Chairman of EPFO's Central Board of Trustees, told reporters after the trustees meet here.

At present, in case of unemployment, a subscriber can withdraw his or her funds after two months of unemployment and settle the account in one go.

The minister was of the view that this new provision would give an option to members to keep their account with the EPFO, which he can use after regaining employment again.

However, it was proposed that the members would be allowed to take 60 per cent of funds as an advance on unemployment for not less than 30 days. But, the CBT raised the limit to 75 per cent in the meeting held today.

The minister further said, "We approved almost the entire agenda listed for the meeting of the CBT today. We have also given an extension of one year to ETF (exchange-traded funds) manufacturers SBI and UTI Mutual funds till July 1, 2019. We have also extended the term of fund managers till December 31, 2018."

There was a proposal to give an extension of six more months to its five fund managers SBI, ICICI Securities Primary Dealership, Reliance Capital, HSBC AMC and UTI AMC for managing its corpus.

The five fund managers were appointed for three years from April 1, 2015. They were given extension till June 30, 2018. The CBT has also approved the proposal to appoint a consultant for selection of portfolio managers.

The minister also said that the EPFO's ETF investment would soon cross Rs 1 lakh crore mark as it has already invested Rs 47,431.24 crore till May end this year earning a return of 16.07 per cent.

The EPFO has also extended the tenure of its consultant CRISIL for evaluation of the performance of fund manager till December 31, 2018.

On the widening of the range of the ETF investments by the EPFO, a CBT member said that the agenda was deferred and the board was unanimous that a call will be taken on the advice of new fund managers and consultants to be appointed shortly.

It was proposed to amend the investment pattern of the EPFO to enable the body to invest in equity index ETF beyond NIFTY 50 and Sensex ETF.

Employees’ Provident Fund Organisation EPFO

Interest rates

2012-20

Interest rates given by the EPFO to its six crore subscribers, 2012-20
From: EPFO snips interest rate by 0.15% to 7-year low of 8.5%, March 6, 2020: The Times of India


See graphic:

Interest rates given by the EPFO to its six crore subscribers, 2012-20

Private EPF trusts

They cannot declare interest lower than EPFO's

Lubna Kably, Pvt EPF trusts can't declare interest lower than EPFO's, October 10, 2017: The Times of India


Companies To Be Periodically Ranked On Six Parameters

Nearly 1,500 private employee provident fund trusts set up by companies for administration of their employee provident funds (EPFs) will have to ensure that the rate of interest declared by them is at par or higher than that declared by the Employee Provident Fund Office (EPFO).

Further, there will be periodic evaluation and monthly ranking of companies which have set up such trusts to ensure better compliance.Employees will also have to be promptly intimated within two days when their EPF account is credited.

The ministry of labour noticed that a few private EPF trusts were not able to declare the rate of interest at par with EPFO. Hence, a recent circular emphasises that any deficit in interest declared by the board of trustees is to be made good by the employer to bring it up to the statutory limit.

“About 1,500 companies have been granted exemption (ie: permission) to maintain their own EPF trusts. While declaration of the minimum interest prescribed by the EPFO and meeting of any deficit by the employer company , are conditions prescribed for running a private EPF trust, some were not following it.The recent circular on interest rate and prompt communication to employees aims to ensure parity for employees covered by such private trusts,“ said an official.

Sonu Iyer, leader and partner, People Advisory Services at EY India, illustrates: “For the financial year 2016-17, the interest rate announced by the EPFO was 8.65%. Irrespective of the earnings actually made by the private trusts, they are required to provide this minimum interest rate to their employees. These trusts have also been advised, via the circular, to constitute investment committees to ensure optimal financial management of the trust's funds.“

“Stringent action, such as cancellation of the permission given to the private EPF trust, will be taken for repeated defaults, especially for delays in remittance of money collected from employees or for reduced interest rates,“ say government sources.

Companies with private EPF trusts will be evaluated periodically on six parame ters (100 points for each), such as: full and timely monthly remittances of EPF accumulations to the private trust; transfer of funds ­­ for example on exit of employees; efficacy of making investments, the rate of return and settlement of claims and audit of the private trust's accounts.

All companies having 20 or more employees have to provide a social security net via provident fund. If a company has not opted for its own private provident fund trust, the employees are covered by the fund administered by the EPFO, which currently oversees nearly 15 crore employee accounts.

EPFO communicates remittances made to an employee's account through UMANG mobile app e-passbook.

The EPFO website has already put up the ranking of 1,552 companies for July , with 50 firms getting a perfect score of 600. Notable names include Steel Authority of India, West Bengal Power Development Corporation, Gujarat State Fertilizers, Godrej Consumer Products, Nestle India, and Mother Diary .

Public Provident Fund (PPF)

10- year bond determines PPF rates

2016-17: the yield of the 10- year bond that determines PPF rates
From The Times of India, September 25, 2017

See graphic, 2016-17- the yield of the 10- year bond that determines PPF rates

Premature closure for studies, medical expenses

The Times of India, Jun 22 2016

Premature PPF closure okayed for studies, med expenses

Subscribers of the Public Provident Fund (PPF) can now close their accounts before maturity , but after it completes five years, for reasons such as higher education or expenditure towards a medical emergency . “A subscriber shall be allowed premature closure of his account, or account of a minor of whom he is the guardian, on the ground that the amount is required for treatment of serious ailments or life-threatening diseases of the account-holder, spouse or dependent children, on production of supporting documents from the competent medical authority ,“ the finance ministry said in a notification..

Similarly , the closure of account to seek funds for higher education will require the submission of documents and fee bills confirming the account-holder's admission in a recognised institution in India or abroad.

Rules and procedures for holders

PPF account to be closed if holder becomes NRI

October 30, 2017: The Times of India


HIGHLIGHTS

Government has notified that PPF accounts would be closed prior to maturity in case of holders changing their personal status to become NRIs

NRIs are not allowed in instruments like the National Savings Certificates, Public Provident Fund, Monthly Income Schemes and other time deposits offered by the post office

Amending rules on post office savings schemes like the National Savings Certificates (NSC) and Public Provident Fund (PPF), the government has notified that such accounts would be closed prior to maturity in case of holders changing their personal status to become non-resident Indians (NRIs).

The amended rules were notified in the official gazette earlier this month.

The amendment to the PPF Scheme, 1968, says: "If a resident who opened an account under this scheme, subsequently becomes a non-resident during the currency of the maturity period, the account shall be deemed to be closed with effect from the day he becomes non-resident".

The interest payable would be up to the date of the account closure, it said.

A separate notification on NSCs said in case of a similar change of status of the certificate holder before the maturity period, "the certificate will be encashed, or deemed to be encashed on the day he becomes non-resident" and interest will be paid accordingly.

NRIs are not allowed in instruments like the National Savings Certificates, Public Provident Fund, Monthly Income Schemes and other time deposits offered by the post office.

In September 2017, the government had retained the interest rate on Public Provident Fund for October-December unchanged at 7.8%, in line with the rates for small savings schemes.

Withdrawals

For housing, health

The Times of India, Apr 19 2016

PF withdrawal allowed for housing, health

The labour ministry eased the planned restriction on withdrawal of contribution to the employees' provident fund. It said withdrawal can be allowed for housing, major medical treatment for self and family members, medical, dental and engineering educa tion of children, and for their marriage.

The relaxation has also been extended to members who have joined an establishment belonging to or under the central or state government, and become a member of contributory provident fund or old age pension.

These norms will come into effect from August.

The amendments were made after labour minister Bandaru Dattatreya received representations from trade unions. A government release said the ministry had decided to pay the full accumulations to the credit of a member, including interest up to the date of payment, if he or she fulfils any of the above-mentioned conditions. In February , the ministry had said PF subscribers would not be able to withdraw their provident fund after attaining the age of 54 years, and will have to wait till they are 58 years old.

See also

Pensions and retirement: India Provident Fund: India

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