Irked by the SBI’s unilateral decision to raise charges on provident fund collections, the retirement fund manager EPFO is considering handing over the business to other banks, and the negotiations for the same may start soon.

The EPFO’s Executive Committee (EC) has decided that the Employees’ Provident Fund Organisation will start negotiations with other banks for exploring the possibility of switching over the collection business to others, a Labour Ministry source said.

“EC headed by the Labour Secretary also decided that the State Bank of India (SBI) may continue as its collection agent for two or three years on agreed terms arrived at through the involvement of the Ministry of Labour and the Ministry of Finance and in the meanwhile new multi-banking model for collection can be explored,” he said.

EC had taken this decision in its meeting on December 4, 2009 and sought comments of the EPFO’s key advisory body Finance and Investment Committee before going ahead. The issue was placed for discussion during FIC meeting held last week.

The EPFO’s agreement with the SBI for collection of provident fund returns expired on May, 2008. Soon after the SBI issued instructions to its branch offices to charge Rs. 3 per Rs. 1,000 compared to Rs. 1.5-2 per Rs. 1,000.

Besides, the SBI also asked the EPFO to arrange for payment of arrears of difference of Rs. 3 per Rs. 1,000 and the actual charges paid with effect from May 21, 2008.

Though, Finance and Labour Ministries intervened, an agreement between the EPFO and the SBI could not be reached on mutually agreeable terms.

Taking a unilateral decision, the SBI enforced revised collection charges of Rs. 3 per Rs. 1,000 from December 1, 2009 and stopped implementing the e-challan collection at centres other than Karnal and Gurgaon which were started on experimental basis.

The SBI asked for Rs. 2 lakh per branch as facilitation charges for introducing the collection through e-challan, which ensures transfer of funds electronically.

Giving its reasons for increasing charges, the bank had told the EPFO that earlier collection charges were based on the package deal with an element of cross-subsidisation between treasury and collection business.

With the introduction of multi-fund managers, it had no choice but to protect the profitability of services offered by the bank, the SBI pointed out.

However, according the EPFO records, it paid Rs. 48.81 crore as collection and transaction charges to the SBI in FY’08 where as it paid mere Rs. 2.79 crore for treasury (investment) or for managing its funds in that fiscal.

Interestingly, the EPFO had appointed four fund managers in July 2008, including ICICI Pru, HSBC AMC, Reliance Capital and the SBI.

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