EPFO one-time home assistance is fine but EMI would be disruptive all round

The employees’ provident fund organisation (EPFO) is all set to launch its major housing initiative ever on 8 March, 2017 when curtains draw on the assembly elections in five states. The broad features of the new scheme are:

1) Employees should form a cooperative society having at least 20 members under the active participation of the employer:

2) Such societies would tie up with builders and banks to launch a employee housing project; and

3) Armed with such membership, the EPFO subscribers can then seek financial assistance from their provident fund accumulations both for the down payment and EMIs.

At present, the EPFO provides one-time assistance for home or marriage expenses or children education without getting entangled in the nitty-gritty of any of them. A demand letter from a cooperative society or builder is sufficient to avail of this one time assistance. Now, EPFO would be needlessly getting into the choppy waters of minutiae of home loans.

The subscriber will be at the tender mercies of the EPFO machinery for timely payment of EMIs. Any delay in the release of monthly assistance by the EPFO could pit the borrower against the home loan company. One shudders even to visualise the consequences of the contagion effect in the banking system—big borrowers’ failure to keep up their commitments to the lenders having a ripple effect on the entire banking system. Likewise, EPFO’s slack would tell on the balance sheets of home loan companies many of whom or banks.

Secondly, provident fund in design was meant to be a retirement benefit. Over the years this laudable aim has come to be diluted for a variety of reasons. The midcourse or midstream withdrawal for marriage/education/home—although laudable purposes themselves admittedly—has spelled dilution in the accumulations for the rainy day i.e. the post retirement life when one’s income dries up. Add to this the wayward ways of employees who used to look to PF accumulations to run their day-to-day life whenever they were out of employment by biding the mandatory 60 day cooling of time.

It is good that the government has initiated a slew of measures to counter this dangerous proclivity—Universal Access Number (UAN) that would prevent a subscriber from committing this vice of laying his hands on money meant for the old age by keeping track of the provident fund activities of a subscriber spanning his entire employment career with one or more employers as well as the last year move to make available one’s accumulations only on attaining the age of 58, period. Apart from the above conceptual objections, the following features of the scheme should make one chary of it:

1) The scheme will also help the formal sector workers proving their credit worthiness as the EPFO would provide a certificate indicating the subscribers’ paying capacity and ability to repay loans. Well, this may appear to be good at first blush but on a deeper reflection would show that EPFO is unnecessarily sticking its neck out. EPFO is neither equipped for this demanding job of credit appraisal nor is it its mandate;

2) The source said that in case of any dispute, the EPFO would not be a party to the legal battle and the group housing society would settle their issues either with the banker or builder or seller of the homes. This rider in the scheme should ring alarm bells all round and has the danger of derailing the entire project as well as imperiling the financial viability of the home loan financier;

3) In case of any dispute, the EPFO will have the right to stop the down payment or monthly installment of loan on the request of executive head of the group housing society. This is the logical culmination of the previous rider. In addition, it leaves scope for politicking in the employee’s organisation. The executive of the group housing society would be embroiled in a series of controversies, dragging everyone including the EPFO into unseemly controversies and disputes.

Mahatma Gandhi said customer is the king and should be the focus of any organisation. I may add every scheme. Therefore any scheme should be designed or adjudged on the touchstone of customer convenience. Imagine a situation like this—a subscriber to PF is eligible for EMI assistance of say Rs 3,000 whereas the home loan company has worked out an EMI of Rs 6,000. It would be chaotic for everyone to pay EMI from two different sources.