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EMPLOYEES' PROVIDENT FUND ORQANISA TION

NEW DELHII

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i• 116th Meeting oftbe

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•VENUE: ~

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Conference Hall, I3rd, !Floor, EPFO ( Head Office),

: Bhavishya NidhiBhawan, I14, Bhikaiji Cama Place,

NEW DELHI - 110066. I

i••-- -- ...--..

EMPLOYEES' PROVIDENT FUND ORGANISATION

AGENDA BOOK11Sth Meeting of the Finance Investment and Audit Committee,

CBT,EPF

Date: 09.01.2015 INDEX OF ITEMS Time: 02:30 P.M

Item No. Agenda Page No.

i, Confirmation of the Minutes of 115tn Meeting of the FinanceTm ~.. ••. and Allnit Cnmmittpp .held on 11.11.2014 atEPFO, Head Office, New Delhi. 2-11

2. Appointment of State Bank of India (581) as one of the

Portfolio Managers of EPFOon nomination basis. 12-23

3. Opening of bids for appointment of Portfolio Managers, andfurther action thereon (brief check list is enclosed).

Any other item with the permission of the Chair

Item No.1: Confirmation of the Minutes of 11SthMeeting of the FinanceInvestment and Audit Committee aeld on 11.11.2014 at EPFOHeadquarter, New Delhi

Minutes of 11SthFinance Investment and Committee meeting held on

11.11.2014 was circulated vide letter No. Invest.1/ (llSth) FIAC/2014/2S296 dated

01.12.2014. Copy of the minutes is enclosed as Annexure -1 of this item.

Minutes may be taken as confirmed.

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115'" FIAC Meeting

Minutes of the 11Sthmeeting of Finance Investment & Audit Committeeheld on 11.11.20i4

1. The l1Sth meeting of the Finance and Investment 'committee, Central Board ofTrustees, Employees'" Provident Fund was held at 11:00. A.M. on 11.11.2014 at

EPFO, Head office, New Delhi.

2. The following were present in the meeting:

b. Sh. Arun Kumar Sinha

Chairman, Finance Investment & Audit Committee(AAC), CBT, EPFarid Central Provident FundCommissioner, Employees' .Provident FundOrganisation, Head Office. '

Additional Secretary,·MO.L &' E . .

a. Shri K.KJalan

c. Ms. Meenakshi Gupta Joint Secretary & Financial AdVisor, MOL&E

d. Dr. Ram S. Tarneja: Member,..CB~ .EPE(Employers'.Repr.esentatiye)

e. Shri J.P.Chowdhary' Member, CBT,'EPF (Employers' Representative)

f. Shri Prabhakar J. Banasure Member, CBT, EPF(Employ~es' Representative)

g. Shri Sanjay Kumar l Convener and f:=A&CAO, EPFO:!

3. The following members could not attend the meeting: "

a. Dr. G.Sanjeeva Reddy, Member, CBT,.EPF (Employees' Representative)b. Shri Anup Wadhawan, Joint Secretary DFS (Domain Expert)

4. The following officers/invitees were in attendance:a. Shri Sanjay Kumar, RPFC-I (FA)b. Shri Chandramciuti Chakraborty, RPFC-I (Pension)c. Shri Amul Raj I RPFC-II (Investment)d. Shri Ajay Kumar, RPFC-U(IMC)e. Shri M.S.Arya R~FC-II (WSU)f. Shri M.K.Srivastava, APFC(Banking)g. Shri J. Pandit, Actuary

11ShF1AC Meeting

Consultant Representative:

1. Mr. MukeshAgarwal- President,CRISILResearch2. Mr. PiyushGunt:~- }'\sso~;::'.t'2' '"'!ir~~-", r.?Tr-I'. "'> •..

3. Mr.Vikram Shastry-Manager, CRlSILResearch

.5. The Chairman welcomed all the members and Qfficers-present in the meeting.

6. The Agenda wise'discussions are recorded below:

, ,

Item No 1: Confirmation of the Minutes of 114tftMeeting of the Finance 'and'Investment Committee held' on 25.08.2014 at EPFO, HeadOffice, New,Delhi.

The minutes were confirmed.

Item No 2: Actions taken on the recommendations of the 114th meetingof finance & lilvestmenf Committee' held on 25.08.2014.'

The ~ommittee took note of the Action Taken Report.

f:

Item 3: Fina.fization ,of Request for Proposal (RFP) Documents for selectionof ~ortfolioMa'nagers.

, , .

A. The Committee raised certain queries while discussing the RFP for appointmentof ,Portfolio Managers. The queries alongwith the response of the Consultant anddecision of the FIAC on the respective points is as per the table below:

SI.No. Queries, raised by Discussion/Clarifications Final Decision:

FIACi. Why the ratio of - Same ratio was followed Maintain 80:20 '

. Technical bid':', Rnancial last time for the selection,bid is 80:20 as standard of Portfolio Managers.practice is 70:30?', - More emphasis should be

given to technical strenqth

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iii.

iv,

Should we keep at the AUMs are volatile in nature' - AU,M as onAUMunder debt fund of and average AUMs give October 31,Rs, 15,000 crores (or better' idea on the funds ,2014 to beRs. 7,500 crores under managed' by the potential considered.retirement funds) in the applicantasAUM as on date - Necessarypre-qualification' criteria (i.e. September 30, 2014) 'changes haveas on date, ;, as at could be one-time nos. and beenSeptember 30, i2014 or could mislead about the incorporated inaverage of " ~ last 4 experienceof the applicant.', 'the attached RFP,quarters? for the selection,

Why the experience ofapplicants in : FixedIncome Managementhas been increasedto 5years from 3 years ascompared to lastselectionprocess?

period ofon AUM

EvaluationapplicantsunderfundsjAUMtermportfolios/analysispoint-to-point

retirementunder long

debtof

as the Portfolio Managersneed to have strongertechnical capabilitiesconsideringthe volume oftransactions and size offunds to be managed.

Five years would cover acomplete interest rate cycle.Even 'tl;e- -- . potential'applicants had suggestedfive years during the"discussions with them .ondraft RFP, put up by E,~FOon its website ,forcomments.

" .

llSl' FlAC Meeting

- It was cfecidedto .keep it 3years"as 5 yearswould make itrestrictive.

• Necessarychanges havebeen'incorporated inthe attached RFPfor the selectionof portfoliomanagers

of ' portfolioManagers.

Necessarychanges have

:

been incorporatedin the attachedRFP for theselection ofportfolio

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1/ Sh FIA CMeeting

returns/analysis of managerspurchase yield shouldbe for 3 years. to align it~.•;U1 lLi~ jJfc-

.qualification cntena asdiscussed above.

;

B. The Committee approved the final RFP document after incorporating the abovechanges. The document after changes is available at Annexure 'A'.

C. The committee was of the view that the present extended tenure of the PortfolioManagers .is due to expire on 31st March, 2015. Therefore, the process of selection ofPortfolio Managers should be concluded as early as posslble. Accordingly, it was agreedthat applications of the prospective applicants may be received within 30 days from thedate of publishing of RFPas against 6 weeks as suggested by the Consultant.

D. FA brought to the notice of the Committee that the Committee needs to examineas to whether SB! 'should be in competition with other portfolio managers. He told theCommittee that in the last selection of portfolio manager, 5BI was last one in thecompetition .end, this time gbten the circumstances might not be in the first five or sixalso. The Committee deliberated upon the situation and it felt that 5B! must be one ofthe portfolio. managers. The c:ommittee observed that it is necessary becauseassociation with SBr as Portfolio manager has always been there. .. .~

E. Hon'ble Consultative Committee (Labour & Empl~yment) has also noted aboutthe ~e;-. Further 5BI as portfolio manager can be a g(xx:J indicator for evaluating theservices of other portfolio managers. The committee also felt that S8r being the solebanker and one time the sole portfolio manager, it would be difficult to keep S8! out.The Committee, therefore, was of considered view that 5BI shall be associated as PortFolio Manager on nomination basis.:

F. The Committee also decided that as regards the charges of SBl (which arehigher in case of :.:'"',1 then other portfolio managers) and the share of the portfolio to bemariaged by the. 561, CST can take a decision or could constitute a sub-committee tolook into the issue. .

G. It was brought·.to the notice of the Committee that on the previous occasion forselection of portfolio manager, EOI was called before theRfP was issued. However,since the RFP is given to each and every eligible· portfolio manager with same pre-qualification criteria as would have gone in EOI, the step of inviting a separate EO! maybe dispensed with. It was also pointed out that Coal t'~'1inesProvident Fund as well asPFRDA in their recent process for selection of portfolio managers have also gone for

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RFPwithout going for EOI. Accordingly, the Committee decided that EPFOcan also gofor RFPdirectly.

Item 4: Request for Proposal (RFP) for Appointment as CustodianofSecurities for the Employees' Provident Fund Organization (EPFO)

The Consultant tabled the changes in the selection process of custodian. Thecommittee agreed with the changes made by the Consultcmt.

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FA & CAO Informed the Committee that the custodian work ts complex and ofsignificant importance for the correct accounting of the investments, timely receipt ofinterest thereon and also for ensuring .timely receipt of amount on maturity of theassets. Change of Consultant requires more than ione year in the process ofstabilization and providing quality service to us. This comment comes from ,theexperience of change in <tustodian in 2011. He further informed that as per the bestpractice followed by the Aunds, Custodians are normally kept for very long term, manya times more than 10 ye~. He also brought to the knowledge C?fthe Committee thatthe present custodian is icharging merely 0.0000001 % of the assets under custodyfrom EPfO. This has tra~slat~into an out90 of about Rs.22000/- only for the entire

financial year 2013-14 as custodian fees. In view of this palbycustodian fees beingcharged by the present custodian change of the custodian wnl not bring any materialsaving even if it is assumed that few of. the other custodians may quote a lower fee.Change of Fund Managers and custodian at the same time also may result into newpersons performing the job of Fund management and custodian. For better continuityof the services, it will be appropriate to stagger period of engagement of the custodianand Fund Manager so that at the time of change, either of the 2 parties will ensurecontinuity of the informatl,on. .

.~.. ..In view of the above arguments, FIAC concluded that it wilr be in the interest of

the Organisation to continue with the same custodian for the. next cycle of appointmentof the Fund Managers. The FIAC further decided that the term of Custodian may beextended by a period of 6 month beyond the date of expiry of the Fund Managers to beappointed by the process discussed at Agenda Item No.3. FIAC further directed that aletter of consent should be obtained from the present custodian and the matter may beplaced before the CBT inthe next meeting.

In case, the CBT! is not in .agreement with the above view point, the RFPdocument as annexed at Annexure '8' is approved for appointing the. custodian.

JJSh FlAC Meeting

Item 5: Request for P~posal (RFP) for Appointm4!!!t!'s External Concurrent,Auditor (~r:I)' f",. "~CI I:l"'!'!"""""~"~' "' .••••••.,;"~"'•.•~ ~"., .• :.1I f"h"'~~~b::;~'~""1''\

(EPFO)'

The Consultant tabled the changes in the selection process of the ExternalConcurrentAuditor that were agreed to by the FIAC.

. ,

FA & CAO however, informed the commlttee that the term of the currentexternal concurrent auditor should be extended.to 5 years in line with the provisionsofthe present Companies Act. If agreed to, this wili ensure the continuity of theCharteredAccountantwho has acquiredspecializedknowledgefor doing the concurrentaudit of highly regulated .investment processthat EPFQ.foliows. Extending the tenureof the concurrent" auditor, will in turn ensure that: at the time of new cycte of

. .

appointment of portfollo managers, concurrent auditor is better equipped with itspreviousexperlence to oversee and monitor the functiqoing of the portfolio managers.Considerinqthe above arguments, theFAIC decidedthat the tenure of present externalconcurrent, auditor should be extended till October, 2016 on the same terms andconditions on which they were appointed, The committee further directed that a lettero 'co sen s ou .e0 tame rom ~ e presentexternal concurrent auditor and agenda

. - may be placedbefore the next CBTfor its approval... .

In case, the CST is not in' agreement with t~e above view point, the RFPdocumentas annexedat Annexure 'c' is approvedfor appointing the ECA. '

Item No 6: Discussion on amended Regulations'of BASELIII bond by RBI

. The F~ & CAO introduced the item to. the Committee. Sh. Chaudharydesired that a detailed note on BASELIII Additional Tier (AT) 1 bond may be placedbefore the Commlttee.: It was further decided that 'an Expert Committee alreadyapproved.to look into various issuespertaining to inve~ents ,maybe askedto analyzethis issue also..Thereafter.,the recommendationof the: Expert Committee on Basel IIIAT 1 bondmay be placedbefore the Committee. ;

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Item No 7:

llsd' FIAt Meeting

Note on formation of Expert Committee for' issues related toInvestment Guidelines and Bajpai .Report on InvestmentPattern.

The committee took note of the efforts made by EPFOand empowered theCPFCto nominate some other Expert as Chairman of the said sub-commntee in placeof Sh. Arun Kaul. .. .

Item No 8: Proposal for Amendment in EPF Scheme 1952 for engagingScheduled Commercial Banks in addition to 5BI for collection ofContribution.

The proposal for amendment in EPF Scheme, 1952' for engaging. .Scheduled Cornmercal :Banks in addition to 5B! for collection of contribution was

placed before the RnarJce, Investment and Audit Committee (EPF}.The matter was! • •

discussed and recommended by FIAC, EPFfor placing the same-before the CBT,EPF.

Item No 9: 14th15th & 16th (Combined) Valuation Report of ~e Employees'Pension Fund as on 31.03.2012 - Report submitted by MIs.K.A. Pandit, Consultants & Actuaries, the Valuer, appointed bythe Central Government.

Initiating the discussion on the agenda Item FA&CAO informed themembers of the committee that the Actuarial Valuation Report of the Employees

,i • "

Pension Fund for the combined three years period from 31.03.~010 - -31.03.2012 wassubmitted by Mr. K. Pandit the Actuary appointed by the Central Government and the

same had been placed in the 204th CBT meeting held on 26.08.2014 .. The Board after

going through the report had referred the same to be placed.before the Rnance &

Investment Committee for examining the following;-

1) The reasons for substantial fluctuation in the surpluS/defidt as brought out in the. . .

actuarial reports. I·

2) The terms of reference of the actuary appointed for conducting the valuation of

the pension fund.

11th FIAC Meeting

The report has been accordingly placed for deliberation before the FIAC.

He informed FIAC that the actuarial valuation of the Employees Pension Fund was

essentially an assessment (\f thp Net precppt \f~'"a nF t,",~ !=•••••••• ,"~I,;~,... ; ••••"" - ....-~'lrt l-L,,,,

benefit payment obligation as well as the response of the contribution and other credits

in the Fund iMrespect of a!1the existing members and pensioners of the Fund as on the

date of valuation.

The valuation conducted just prior to the present reports l.e, as on

31.03.2009 had revealed as deficit of Rs. 61,608 crores whereas the present valuation

as on 31.03.2012 had -shown the deficit of Rs, 10,855 crores only. Further, more the

report status as on 31.03.2610 the deficit was Rs. 5162~38 crores where on 31.03.2011

there was a surplus of Rs. 12,989 crores. The reason for such variation was to be

looked into by the FIAe.

It was. brought to the notice of the FIAC that one of the major short

valuation exercises earlier had been inadequacy of data both in terms of

quality and quantity, Earlier.the valuation was canted out the 5-15% data and to that

extent there was always room for doubt for the valuation result. Further, earlier the

operation o.f EPFO·were I,argely manual with some computers assistance. The present

valuation as on 31.03.2012 a very intensive and special drive for collection of data was

carried asa result of which complete data in respect of 1.90 crore members which

57.~2% of the acti~e membe~ was provided to the actuary for valuation. Therefore

the reli~bility of valuation result as on 31.03.2012 are much higher.

The exercise of cleaning up and completing the data is continuing in EPFO. ,

and at present data for almost 93% active members have been collected by EPFO. The

data for future valuation would for more comprehensive and the valuation result will

therefore be more reliable.

In so far as the fluctuation in valuanon over the 3 years period i.e.

31.03.2010, 31.03.2011 and 31.03.2012 is concerned, the FIAC noted that the result

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11s#' FIAC Meeting

emerged out of data available for members, pensioners and their respective payment

obligation and receipt in flows as estimated for these 3 years. is given in the table

below:-

No Valuation M~trics Valuation as Valuation as Valuation as.on on on

31.03.2010 31.03.2011 . 31.03.2012~ ;.

1. Membership 58796000 61588000 85500000

2. Pensioners 3510006 3600089 4103014

3. Corpus of Fund 1,23,790.43 1,42,050.82 1,61,780.08

4. Present value of benefit- 2,52,064.97 2,45,055.45 3,22,602.79obligations(In Crs),

5. Present value of,

1,23,112.16 1,15,994.34 . 1,49,967.38contrlbution/receiptslln Crs) .

.,'.

6. Net Deficit/Surplus(!n Crs) 5,162.38 12,989.70' lU,ts!>!> •.;S.;S ,

The FIAC noted that the valuation data provided for the. valua~on as on

31.03.2012 was more r~liable and' comparatively. of better quality. Therefore, the

qualitative result was morereliable. The data .for valuation of.the previous years was

inadequate and hence there was fluctuation in the valuation result.

With these observations the FIAC recommended that combined Actuarial

Report for 14th, 15th and 16th valuation for the period' 31.03,2Ql0, 31.03.2011 and

31.03.2012 as presented by Mis. K.A. Pandit may be accepted by the Board.

10

•.."...'"". . 115'" FIAC Meeting

Item No.10: Revised Estimates for the year 2014-15 and Budget Estimatesfor the year 2015-16 for the EPFO:andSchemes administeredby EPFO.

AdditiulIOI ;:)t:Ut:tdfY lLOtC) ana jOint Secretary &. rAtLdiJOUr, Mifusay or, .

Labour & Employment pointed out that the RE 2014-1,5 is higher than the BE 2014-15

under the budge~ heads=Publlcitv" and "Staff paid from Contingencies"., .'

FA&CAO, EPFO contirmedthat the high projection of RE 2014-15 underthe said budget 'heads' is mainly due to 'organizing .the felicitation programme for

. pensioners on enhancement of minimum pension and on account of outsourcing of, '.

staff against the shortfall of regular posts in the cadre of SSA & MTS.

The committee decided to recommend the.Revised Estimates 2014-15 and, ,

Budget Estimates 2015-16 for placing the same before the CST, EPF.

Item No 11:·Increasing the limit for investment in Private Sector cat~oryfrom 100/0 to lSD/D. .

, The item was tabled. The Committee· after discussion approved theproposal ~s contained in Para G. .

Item No 12: Amendment in Pattern of ~nvestment notified by MOL & E on21st November, 2013. '

, The item was tabled. The Committee 'after discussion approved theproposalas contained iri:Para D.

Item No 13: Risk Management Policy for investm~ntin EPFO.

The item was tabled. The Committee took note of the item and decided

to take up the item in next Meeting.

The MeetIng ended with vote of thanks to the chair.

J J10 IP age

Item: Appointment of State Bank of India (SBI) as one of the PortfolioManagers of EPFO on nomination basis.

1. The FIAC in its 11Sth Meeting held on 11.11.2014 recommended to CST toappoint SBI as one to the Portfolio Manager of EPFOon nomination basis. TheFIAC further recommended that CBT may take a decision or constitute a sub-Committee for negotiation on Management Feeswith SBI and allocation of fundsto 581 (relevant portion of the minutes is placed as~Annexure 'A').

2. The recommendations of the Committee were placed before CBT in its 20SthMeeting held on 19.12.2014 as Item no. 18. The Board after deliberationapproved the appointment of 561 as one of the Portfolio Managers of EPFOonnomination basis. However, there was no decision on the share of portfolio to bemanaged by SBI and the charges to be paid to SBI. (Agenda and relevantportion of minutes are placed as Annexure 'B:).

3. It is highlighted that the bids for Portfolio Managers will be opened and furtheraction thereon taken by FIACon 09.01.2015 and it would be appropriate that the.share of portfolio to be managed by SBI and the charges to be paid to SBI arefinalized before the opening of the technical bids. Accordingly, since the FIAC,which is a Sub-Committee of CBT for finance/investment issues, is also theCommittee for recommending the names of shortlisted Portfolio Managers to theCBT for appointment, it is proposed that the f1AC may take a decision on theshare of portfoliO to be managed by S81 and the charges to be paid to 58I.

4. Background of association of SBI as Portfolio Manager of EPFO isbriefly placed below for deciding the share of portfolio to be managedby 581 and the charges to be paid to SBI;

» Prior to 17.09.2008, 561 was sole Portfolio Manager of EPFO. SBI wasmanaging EPFOscorpus on a transaction fees of 0.03% on face value ofevery investment other than in 50S with certain other conditions.

)- In 2008, EPFO,to bring in competition in Fund Management to increase itsearning, appointed four Portfolio Managers as follows on below given feesand fund allocation:

IZ

· .Sr. No. Portfolio Manager Management Allocation of

Fees as % of Fundincrementalinvestments

1. HSBCAMC 0.0063% 34%2. ICICI Prudential AMC 0.0075% 27%3. S8X 0.01% 20%4 RelianceCapital AMC 0.01% 20%

~ In 2011, EPFO appointed following Portfolio Managers as per the belowgiven fees and fund allocation:

Sr. No. Portfolio Manager Management Allocation ofFees as % of Fund- incrementalinvestments

1. S81 0.01% 35%2. ICICI Securities PO ltd 0.0003% 25%3. RelianceCapitalAMC 0.0004% 20%4 HS6CAMC 0.0036% 20%

~ From the above, it is evident that there is considerable difference betweenthe management fees quoted by SBland by other portfolio managers. It isexpected that this time, EPFO may get even lower quotations ofManagement fees by prospective portfolio managers. In the abovebackground, fund management fees that may be paid to 561 may bedecided by FIAC in consultation with 561. Further, in regards of allocationof funds to 561, it is suggested that the same may be decided afterfinalization of Management fees payable to 561.

Proposal: '''Proposal contained in Para 3 above is placed 'before theCommittee for consideration/approval.

13

. .<: Telephone:26178450 FaxNo: 26194349

, Fund Organisation'~~

GeM. Of India)

No. Invest.IJ(l1Sth Mtg.)/FIAC/2014'/ b! ~,,~

Date: 01.12.2014

1- -DEe 20WTo

All Members,Finance Investment & Audit Committee,Central Board of Trustees, Employees' Provident Fund.

Sub: FOrwarding the Mlnut~ of,llSIh meeting', of the Ri'lance inveStment & AuditCommittee (FlAC)t CBT;iEPF he1don 11.11.2014 atEPFO, HeadOftlce, New Delhi-Reg.

Minutes of l1sth meeting of the Finance Investment & Audit Committee (RAC). - ,.' .

held on 11.11.2014 alongwith Annexures.(A, a& C) approved by the Chairperson are

enclosed herewith for yo~r kind perusal and necessary action please.

Yours faithfully,

Encls~~As above #-(AMUL RA1 SINGH)

REGIONALP.F. COMMISSIONER~II (INVCST.)

. '. .~"~ ..•.

llsM FlACMeeting

Consultal1'Jle"~"--.- ..

1. Mr;Mukesh:,Agarwat~ •.•PresIdent,. CRISIL Research2. Mr.PlVtJSttGup""AS!odate:,Olrector, CRISll Research3. Mr.-Vl~;ShaStly4Ma~kCRISIl Research

5. TIleCm.irman' welcomedcatl,tbe.members and offlCMpresent in the meeting.. '-. ..'

ltem No:2:, ,,~ctionstals_on,tI'te' ,recornmendatioilSof the , 114t!r;j'~(";i'OUFn1aI1Clt.;Ih •••• entCOm~beldon 25.0&201'" '. . -". - - '. - . .

Xteln~f Fi"al_tiQrt,'fI::Req ••~for ~posal'{Ilf.PlDbaiments,for selectionof'fi~I~'''''n'M.f~~·· "

A. tbe:.~~fu~~_~'s«t~iilqU~iE!$while; dl.5qJ$sing:the RFP for appointment'of Por;tfQJiq:"M~'Tbe.';q~~lQnQWiththe're,Sp()nse of the Consultant and

., d~;Qt,tf)!~'.On'~~~~ts~l~'~'PIr\~;.~,.l:?~low:

Maintain 80:20

i',',I.,

•

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15

...have ~nger .

iI. .•It was decidedto keep· it 3years as 5 yearswould make itrest:rictive~

-,~ecessarychanges have'beenincorporated inthe attacJled RFP

., for the Selectionof . portfolio

iiI. onOctober 31,20.14 to beconsidered.

-NeCessarychanges havebeen

~ inthe;attache(U~fPfor the seleetlOnof p6ttf'01l0Managers.

iv.changes have

I

been Incorporatedin the attachedRFP for theseJection of

.<.

portrolio

311' a !: c

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111" FIAC Meeting

.retumsJanalV$iS;ot ,".pu~~ yiekt: .•.sl10ukf :..be, fOr 3-'{eat$tO:aI;gif:it' i.

with the.. pr~::q\,lalJfitatlon: CI'itel'ta, as:dl~~.· .

managers

B. TheCommitte&approved.tt.efinaJRFP documentafter incorporating the abovechanges.,Thftdocument ~tter·dt~i5availabJe,atAnttMyre··A'.

C. Thec:orn~was;ofthl,.·that:the·.preserit:~ tenure of the PortfolioManagersd$due~to::expir&:qn:413~,,~Ol5..~, th4!' process of selection ofPortfOliQ,~~~~~"'.early'~possit)Ie •• Accordingly, it was agreedthat appl~;ofthEJ:~appil¢Cltitsmay~:r~v~ within 30 days from the·datelofpuDlti;bil1g,Qf.BW:as,.lni\t~a$·$I99~.b.y,·the Consultant.

. '. '. . ,- ,. - - - .'~ , " ': ':}- '.' '- .. '. .'

o. FAbrOugll~~QtPe'~Qf4b~'Committeethat-:~committee needs to examineas to·w~sft.l;shOUld;'~~ln~tlo'tWt~~~.p(ftiOltP ·managers. He .told theCommitte« UlaJJflJtie:I_L __ :;ct.·~OIiO, ~~I:' 58,1 was last one ln. thecompetItJon;~.~iS'tt(rt$'~tM:~'m~:hOt, be in. the flrst.fl\teor siX'also. TheCOmmltt'e&c!ellbeict'*t ." the ~atkxianCritfeJt that 581 must !leOne ofthe I , manager's.· '.. .cotram1tteeobserved; that it .Is necessary' becauseassodat:iorr"NIth:;$B~a$.~~·hit~.a~~.·mere~

E. ,HOO*·C~~,:·~(laPour&Elnpiayment).has also noted about:v=~=r=_;a,~O~;:=f~~!~:::~:~~gs::~eri!u~~~&tbt1.'$9t'i~;m~ager; i~WOO'~..t>e.dimcultto keep.S8! out.~Ccm.t~I1i~~fQfei~OfCQriSidetEld'VleW~t~lSOa'lbe a~iated as PortF91k>M~~·),M:l~~~.,ti~r;: ..

F. _ .~:~~~~.,~~~(;~t~~~":~'diaf9es of 58I (~MiCh art·hi9~rJI).~~~~'~~-t,fi~:p~f~~t~QIJQm~f)agers).a~tnesh~re of the portfolio to be~nage.o;JW'~SlJlicaT.:~flIt!~~~:QrCO,Q"~tote a sub-CommJttee toloOkJfl~t,6t~. . ..,.,. .", -<. - " '.~.." .

.G.. . It,,!.~,~tt~th.~p.fthe~mmjlWe t6a~oJ,.the previousoccasion for~on:.qr~~'man~,_wil~ called befotEftheRFPwas issued. However,stnce'the-RFP~ :.Js29fveri.tc)¢~~'~ery eUglt>Je·Porti~no-manager with same pre-qQallficatlQnCrJt~a as.wOtiJ((~Qone.ineot, theSt~ofinvlting a separate EOr maybe-dispensE!dwitf). Itwas.::alSo-~edout that·CQaI·.~Ir)esProvident Fundas well asPFRDA in ~_¢it' recent Rr~ ~ ~ecij90 of portfolio managers have also gone for

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11f' fL1.CMe,tktg

RFP without, gQjng fore: EOt.; .ACcordingly} tt1e~QlII1111fOr RFP;dltectlYv . ,

Item 4: Custodian ofO'riIaanllzatlon' (EPFO)

.. The Consultant table~i' the chalngei;'k1~U ':~ttfon.···process·of ·custodlan. The

committee.ag~wlttttne<changes''''''''ta'I'IIIiIc·Wii

FA &. CAO Jnforme,(Uhe:~that::the~ian work Is complex and of'significant· impQ(ta~\: f()l'·tne·correc;V~,O(.the:lnvestrnents, timely receipt ofintere$tlthereOn.arl(kalsciJQf~ctiiheiy recelpt:.of' a~unt on maturity of theassets; Chang~· of Consuftant reqt.dres.. more· thai. 'one year in the process ofstabilization and:provldlngqualltY service· to us.' This comment comes from the

experiertceoofchange:JnC~ in2011.. He ~infQlmed that.as per the bestpractfC&folk)Wed;:by~ ,FUndS,:~ns:are. normally keptJor very long term, manya.tJmes"mora~it lO~~.;brOughttD,the,~;.of theCommitteethat=~~~~,~~~=finandal·year 2013-14'a~ custodtan,fees. In vieW'of' this,paltry custodian fees beingcharged by the present custodlancbangeof tha-eustt)dian:wut ,lOt bring any materialsaving even if it Is assumed that,few of the other custOdIans, may quote a lower fee.Change of Fund Mahagersand~ianat ttlesametime also may result into newpersonsperformingthejOb:of'FUr1dmanagement~and~n. For better continuityof.the seryic~, itWilr.~ZCl~to staggerperiOd of e~ement of .the custodianand .FtJndManagE!r $l"tb,at;',at:'ttletirrie of change,.' ~tbf!r·Qt·the 2 parties will ensure·coOtinUirt.o"~-lnf~~~

,.-InvleWqf'~:~--~Uments"FIAC~~thltltWill be In the Interest of

·th~organr~Qf1;fQ;'C9~;V(iUt_same .e,ustodf" .:~ •.~-next cyde 'of appointmentoftheFI.li1d;)~'~gers~~:rtAC'~q~.thar~tefm, of Custodianmay beextende<iby'ap.nPdof6~U,~ the:'Ciateof'exPrr;,ofthe Fund·Manage~ to beappoint~bYtheProces$~dl~ at,Agenda Item Net. ;3.,.:FlACfurther directed that ale~er of con~t.:shout(rbe:ot)tiJ~ttom,th' present ·~and the matter may bepla(:ed.·before·the;catin~·l'leXt·.~

In case, the csr is 1lQt. In agreement with \:he ~bove view point, the RFPdocument as annex~ at.An"...,lIils approvedforappQlnting the' custodian.

. .- - ;~. -

51Pagl:

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PS ~IDCPFC fQr Information and with the request tointiBille date and time for the review by CPFC on thecapIDled subject. " J

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Page No .File No. _

Sub~:l. Draft mlnub!s of the 20sU' CST meeting heldon 1:9.12.2014.

2. Minulal of .InfOrmal meeting held with non-official members on 13.10.2014. .

Please find enclosed minutes of the above referredmeetings. Draft minutes of the arr have been submitted forapproval eX Hontie Cbairman,. <:aT (EPF). During. the ~meeting of CST held on 19.12.2014, members raised issue of theirbeing either non-avallabtlity of action taken on decisions 1)f theBoard or Incomplete action taken report.

~ has dred,ed that ttle above mentioned minutes beperused and updiRson each of· the deciSion pplnt pertaining toyour DMsion, mar be compiled. CPFC will be taking a review onthe Issue within a week's time. . A .. 1\

~ II~Iaven u

. Regional PF CommiS$ioner (Conf./MIS/PQ)

U.O. No. Conf.l(1}20Sth CBT(EPFI2014Dated: 26.12.2014

To

1.2.3.4.5.6.

:b.fr .

EMPLOYEES' PROVIDENT FUND ORGANlSAnONMINUTES OF TttE 20SlhCST MEmNG

(NEW DELHI: 19*oECEMBER 2014; 11AM)

The 205 tit meeting of the Central Board of Trustees', Employees' Provident Fund (CBT,. . " .... .. . .. ..

EPF)was,held under the Chairmanship of Shr:lBandaru'Dattatteya, Chairman CBT,EPF and. .UnionMinister of Labour a EmplQ¥IP~nt.•TheJollowinl members attended the meeting:~

1. Smt. Gauri Kumar,Secretary'Ministry of Labour a EmploymentGovernment of.ndia. New Delhi

2. Shii Arun Kumar Slnha,Addltional Si!cretaryMinfstryofLabour & EmploymentGovernment of India, New Deihl

3. -smt, Meenakshi Gupta, JS "'FAMinistry of labour 8& EmploymentGovernment of India, New

4. Shrl 0.5. Nesi. DirectorMinistry of labour &Government of India.

5. Ms. Anna Roy,DFSMinistry of Finance, t::, r.«I •• rn',,"A''''~

Central Govemmet'ltrepresentatives

6. Shrl K.K. Jalan,

7. Shri J.P.C;:h9,,!dhary8. Shri SharCldPi'til9. Shrl Ra"';'Wfg10~ SheAshokKumarGupta(in plaee of Dr.U.O.houbey)11. Shri BadishJlndal Employers' representatives12. Shrl B.P. Pant13. Shri 5ushantaSen14. ShrlG.P. Srivastava15. Dr.5.S.Pati!

16. Shri Virijesh Upadhyay17. Shri M Jagdeeswara Rao18. ShrlA.D. Nagpal19. Shrl D.L Sachdev20. ShriAshok Singh21. Shrl Shankar Saha22. Shri,Ramen Pandey23. ShrlA.K. Padmanabhan24. Shrj Prabhakar J Banasure

Employees' representatives

Secretary (l&E) 'Stated that FIACmay again examine along with report for next twoyears 6iving .explanation for noticeable fluctuations aJons with data. further, FIACmay getthe actuaries report peer reviewed .

With ~'Obsetvations the issue'was CIIainreferred to fIAC.

Item No. 16: ~asm for ~ the.nvesbnents beln. macte byexempted funds.. . .

The proposal as contained In the asenda was approved with the direction thatperl'ormance of exempted tt'US~stabllshments should be pJa~ before the Committee onExempted Trust on periodlc-basis.

Item No. 17:·Status MpOrt of WoIfaIr's capital Trust and settl.,. up of Worker's Bank.

The Board noted the.contents of the item. Sec.retary (l&E) stated that. members'... ," .. ,- . . ..... - ..

demands of having a w~rs' Bankcan.ber.rr~o Ministry of Finance.

Item No. 18: RFP for appointment fII Portfolio .~nacers- Recommendation of FIAC toappolnt S8. as Port Fa8DMa•••• er on nomination basis.

The proposal asconta.~'"~o'71

• . "' •• ~

o. ns nos Chartered Bank as CUstodian

The proposal as c-onta~.n': a~rid~:w:s appro~,~ .~

Item No. 20: Extension of Mis arM doobhoy and Jassoobhoy as External ConcurrentAuditor •.

The proposal as contained Intile agenda was~oved,

Item No. 21: Amendment In Patte •• of Investment ·nC;tlfiedby Mol & E on 21" November2013.

The propOsal as contained 'in Ihe agenda was approved.

Item No. 22: Increasinc the limit ofiJlllestrnent in Private Sector catecory from 10% to 15%_

The Board desired that the issue be examined first by the expert committee and then byFIAC,The detailed analysis of expeltmmmittee and FiAt should later be presented beforeBoard,

21

20~CB"{"

,~. . ~.RFp.¥r· fc::hir,'"appolntmen... ol;t;l~,\PoJ'tfoll_ Manage~·RecommendatloB''; 01; FIAC" tOt appolntSBtsas Pod: FollOili"iiManagef-0n. nomlnatlonibasl_i~".' '; ..

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. TheCBTin iis204!~ Meetingheldon26~08.2014:rl1ter alia:~

i.

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",,""'-"':",.-~'-!',',.-.-T ,-:,'r •.~,...··::~¥:~:~>,-.t-.. ,. ,,-_~. ,c .:-,,:jj_~~ •._.:-"_.

Approved appointment of·Mt~;CRISIt::ltd. as Consultant for' Selection of .Portfolio<'Managers,. Custodian and External Concurrent Auditor and Performance Eval.uationot .Selected Portfolio Managers fot thenextterrrr..

Decided' that, the task' ofseiectic)n'of' portfolio. manag~r;~'custodian and ..external. 'concurrent auditor with the asSistance of consultant ma'{b~ carried out by FIAt.·

ii.

Accordingly#M/s~CRISllLtcLprepared.thedraft RequestforProposal (RFP),documentsfor' the' appointment of Portfolio, Mana8¢is.~nd, th~·same was placed beforetheFIAC in' its':llSth Meeting' held ,'on 11-1I"201~Ia5;an··.agenda ..orlFiriaJization..of; R,FPdoc~menf forappointment of Portfolio ManagemfTh~' FIAC..after' detailecldiscussion approvea:the-RFP'documents with certain changes in Ittllie minutes ofllSth M~etin8.of.FJACas approved byttte; ..

with the RFPdocument for appointment of' .Portfolio Managers placed as Annexure-lIB.

18.1 S6t has long association withEPFO both as agencyfor,coUecting funds and also as PM.From '1995. to.2008S81was theSoltt:~for EPFO¥The wQrkof funtimanagement.of some of .the peer Provident IPel1sionfun~,,",meIY~'CoaJ Mines Provident Fund. as well as ••'Searn~nProvident· Fund.have given their~ man;,lgement to.,S.Bton n9mination basis for dlff~el1t, periods~ . . ~:.. . '. ..- :'. .

~",•.:,,> ·~;~:-;~,-::;:z:S~<_~\\,;~-·-::>- ,'~;, >

18:.~;~{..5BI••·•being!.a..PSU' ....wor~·.···~~·~;'~~bl~·PM,..:the,:f~~btJj;~~B"~rovides· an·.jn~epel1~eQt'••··;

.beg<!!m0[~f9t(P;~~9~~~~.:;.•.,Z"'t~~~~;%t"~::~:'1~~·~;J,tji~~~~;':~¥i~..DUringthe previoustycre!;~ .apPointment ofPMskSBI;~.\V~$gi~en.preferenc~:iri.tne. .

aUocation of corpus among all sel~PMs despite not bei~gihe:lowesi bidder. ,.., .. - . . . :-:- . - . -. . . . ";.: .," ..•. ~.,. -

18.6. The cost of.managementof1ilo,dfoftbe currentappolntn1~ntqtcJe i.e. from.201t-2014in·case. of S81is 0.01" offresh~~stments beinSimad~_b'l;tp.!rt.The funcJmanagel11ent

. charges being paid toSBI washig~ilRQng allthePMSJofZqii,2Ql,.. the samewashQ....,e,ver:.much below the fixed charges pr~fy given to S8l whe~ItW~~\thesole,PortfolioMan~ger,.cparging 0.2S%of .the.actu~I.~. invested .. SimilarJy~th~ PF~DA'in one .of the earlierinstances had given O.2S% AUM~.iand managern~mt-fe~'SBl.h~roanagj[lgthe Investmeot ofEPFO on tbe following rate overtbieearlier periods.:· ~'.:"" .' ~.,. . . '. . .. . - .• -._ .. ,: ---. .- ..• . ... .

Period Management Fee as " ofIncremental Investment

~".,

18.9 The Committee also decided that as regards the charges of 581 (which are higher in case ~of 581 then other portfolio managers) and the share of the portfolioto be managed by the 581,C8T can take a decision or could constitute a sub-committee to look into the issue. ----~'~ ...•"

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20SthCBT

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1995-2008 100% 0.25%2008-2011 2Q% 0.01%2011 to till date 35% 0.01%

18.7 In the 115th Meeting of FtAC held on 11.11.2014, FA brought to the 'notice of theCommittee that the Committee needs to examine as to whether 581 should be in competitionwith other portfolio managers. He told the Committee that in the last selection of portfoliomanager, S81was last one in the competition and this time given the circumstances might notbe in the first five or six also. The Committee deliberated upon the situation and it felt that SBtmust be one of the portfolio managers. The committee observed that it is necessary becauseassociation with S8t as portfoJio·manager·ha·s·a"i\y·ayS'·been·fFiere:·-············ ; -.-..-.----- ---.

18.8 Hon'ble Consultative Committee (Labour & Employment) has also noted, about thesame. Further S8t as portfolio manager can be a good indicator for evaluating the services ofother portfolio managers. The committee also felt that S8. being the sole banker and one timethe sole portfolio manager; it would be difficult to keep S8t out. The Committee, therefore; wasof considered view that S8t shall be associated as Port Folio Manager o.n nomination basis.

18.10 As recommended by FIACat Para 'E' & 'F' ofthe minutes of 115th FtACon the respectiveitem, the C8T may:

a) Consider appointment of S8t as Portfolio Manager on nomination basis, and. .

b) Take a decision on the share of portfolio jo be managed by S8t and the charges to bepaid to 581.

Proposal: The .proposal at Para 18.10 (a) & (b) above is' placed before theBoard for consideration.

-,..~-