Proposed Workers Bank

The Labour Ministry has asked the Reserve Bank of India (RBI) to form a panel headed by a former Deputy Governor of the central bank to look into a proposal of creating a Workers' Bank using Employees’ Provident Fund (EPF).

What is EPF & EPFO?

1. The EPF (Employees' Provident Fund) is the most popular investment for salaried individuals, and is maintained solely by the Employees' Provident Fund Organization of India (EPFO). As a rule, any company having more than 20 employees has to register with the EPFO.

2. The EPF is a retirement benefit applicable only for salaried employees. It is a fund to which an employee and employer contribute 12 per cent every month (Pre-set by the government of India) of the employee's basic salary. Every year, the employer deposits with the EPFO the contribution from the employer and the employee. Knowingly or unknowingly, 24 per cent of your basic salary is saved every month

3. For those who have a basic salary of up to Rs 6500, contributing to the EPF is mandatory. Contributions are voluntary for those whose basic salary exceeds Rs 6,500.

4. The Central government revises EPF interest rates every year depending upon the revenues made by EPFO on its previous years' deposits. For FY13, the EPF interest rate is 8.50 per cent.

5. You can withdraw from your EPF account on the account your children's education, marriage of self, children and siblings, purchase/construction of a house, or any medical emergencies. However, withdrawal is subject to certain conditions, non-compliance of which would result in penal interest:

6. EPFO corpus is mandated by law to be invested only in Government bonds and 7 Private companies which are considered a safe investment however returns are also low in that.

Why we require Workers Bank?

1. If Workers bank is established a bank, EPFO will not have to pay services and commissions to banks and portfolio managers. Besides, the current hesitation of investing in stock market can also be taken care of as they can explore it through the Workers’ bank.

2. EPFO already has 120-odd offices and the organization is adopting technology in a big way, so infrastructure would not be an issue. The rate of return on EPFO can go up if the organization can invest and manage its own corpus. It won’t cost more than Rs.1,000 crore to the retirement fund manager to start the bank

What will Workers bank do?

1. Workers bank would improve the earnings of Employees’ Provident Fund Organisation (EPFO) by investing its corpus in various instruments.

2. The idea was modeled on similar experiences in countries like Canada, Netherland, Switzerland and South Africa where a collective pension fund system invests worker’s savings in equities of domestic and global markets.

3. the commissions and service charges that are now paid to banks by EPFO can be used as working capital once the proposed bank is up and running.

4. Such a bank will receive contributions from subscribers and charges from employers. It can also manage its growing corpus instead of going to third-party portfolio managers. 

5. Instead of withdrawals, the bank will provide repayable loans to EPF subscribers. It will also provide personal loans to members based on their EPF balance.


However Many experts believe that the idea of setting up of a Workers Bank with the intention of generating higher returns for the EPF contributors and meeting few other requirements of the workers, though laudable, has several shortcomings”.

(1) Bank licensing in India has a universal character; in other words, no licences are likely to be issued for the purpose of receiving investments, which will be the core activity of the Workers’ Bank. 

(2) Fund management can only be one of the objectives of a bank. Hence, redirecting the fund’s attention to the onerous responsibility of owning and managing a commercial bank, fund management may become a secondary concern for the management. This could put the security of the hard earned savings by EPF contributors at significant risk.

(3) Banking business is subject to various risks... in the instant case, Since the intended promoters don’t have core competency in the area of banking and managing a commercial bank, The fund will have to grapple with issues like non-performing assets and debt write-off etc., which would all have a direct bearing on the returns generated and dividend available for distribution among stake holders. 

(4) EPFO is going through a transition phase to move toward providing core banking type services to its subscribers. It has recently introduced portable PF account numbers to its subscribers. It needs to consolidate its core competence rather than starting new venture."


EPFO was set up to put the provident fund and pensions in order and that should be its primary focus. The administration still has issues; there are still migration of account problems and they have not done this efficiently for last 60 years. If they have extra energy, they must focus to keep their house in order before thinking of extra-curricular activities.