RBI supervision for EPFO, Post Office bank on cards after Centre’s nudge
October 14, 2025
The Ministry of Labour and Employment, meanwhile, wrote to the RBI in February this year seeking advice on aspects pertaining to fund management and investment practices of EPFO.
The Ministry of Labour and Employment, meanwhile, wrote to the RBI in February this year seeking advice on aspects pertaining to fund management and investment practices of EPFO. The Ministry had requested the RBI to examine systemic, policy and capacity-related issues within EPFO’s fund management and investment framework, following which the RBI had submitted a report flagging issues such as accounting practices and the conflict of interest as a regulator.
The EPFO’s Board has now approved the formation of a committee with officials from the RBI, Finance Ministry, and Labour and Employment Ministry. “The RBI works as a super regulator. The idea behind approaching them was to seek guidance for EPFO’s operations,” an official said.
The POSB was under the purview of the Ministry of Finance and has been operating as an agency that is covered under the Payment and Settlement Systems Act, 2007. There is already RBI’s authority over the payment-related functions of the Bank given that it comes under the 2007 Act.
The Department of Posts has maintained that technology management of POSB operations has been handed over to India Post Payment Bank from August 2022, which is regulated by the RBI. The proposed new MOU with RBI for the POSB is aimed at undertaking “a review of the internal processes”.
This comes in the wake of the audit scrutiny of the Department of Posts’ savings bank operations last year revealing 60-odd cases of misappropriation of public money in post offices spread over 14 postal circles.
Audit reports showed “manual manipulation or alteration” of the Sanchay Post database by officials. The failure of the head post offices in implementing internal checks for prevention of fraudulent activities in operation of Post Office Saving Bank Schemes has been cited as a reason for this new request for RBI intervention.
A nudge for the move also came from a Parliamentary panel, which was informed of the “large volume of transactions involved in the POSB” and an oversight by the RBI for undertaking a review of “the internal controls and checks” needed to be instituted at prescribed intervals to prevent fraudulent activities in operation of Post Office Savings Bank.
This recommendation for the Department to enter into an MOU with RBI is learnt to have been sent to the Department of Economic Affairs “for necessary guidance and inputs”. When contacted, a senior Finance Ministry official said they were not in receipt of this proposal but did not provide an official comment.
The RBI did not respond to queries sent by The Indian Express on the Government move.
An internal audit report had flagged the mismanagement across postal circles. Subsequently, on May 2, 2024, details of punitive action taken against officials in the Department, who allegedly failed to ensure implementation of internal checks in these cases, were listed out in the wake of the audit report.
In these 60 fraud cases, a total number of alleged offenders, including prime offenders (108), co-offenders (46) and subsidiary offenders (1,018), were identified for disciplinary action.
The number of offenders against whom action was completed was pegged at 718. The offenders against whom action had been initiated was said to be 267 while there were 187 offenders against whom action could not be taken due to either death or retirement.
These numbers include some overlaps. In all, a total of 985 alleged offenders, “who had committed fraud and sub offenders who had failed to ensure implementation of the internal checks codified for preventing fraudulent activities in operation of POSB schemes”, have been punished severely, the Department of Posts said in its submission to the Parliamentary panel.
Both the Post Office Savings Bank and the EPFO have significant assets under management, being the custodian of public money.
The EPFO manages Rs 26 lakh crore for over 30 crore account holders, while the Department of Posts had more than 29.29 crore POSB accounts with an outstanding balance of Rs 12.56 lakh crore under Post Office Savings Bank schemes, as per government data updated till December 2021.
For the EPFO, the RBI has recommended separation of regulatory and fund management functions citing potential conflict of interest due to the dual role of managing various funds and regulating similar provident fund trusts by other entities.
Also, the RBI has flagged anomalies in the process of returns distribution by the EPFO, stating that it is not based on accrued income, and the accounting policy does not recognise losses and provisioning by charging released income. It has also pointed out that the EPFO assumes a held-to-maturity portfolio where all assets are held at cost until redemption and is not doing marking-to-market.
The central bank has also advised the EPFO to conduct a scientific and rigorous actuarial assessment of its liabilities vis-à-vis assets separately for all its schemes.
According to the RBI, EPFO needs to take a “considered and gradual approach” to diversify, including increasing exposure to equities and other asset classes, to enhance returns and mitigate the yield trap, and manage risk through phased investments, strict risk controls and regular portfolio reviews. At present, equity allocation of the EPFO stands at 15 per cent of the fresh accretions.
The EPFO invests 45-65 per cent in government bonds and 20-45 per cent in corporate debt. It can invest a minimum of 20 per cent in corporate bonds, which can go up to 45 per cent.
The EPFO’s Board has now approved the formation of a committee with officials from the RBI, Finance Ministry, and Labour and Employment Ministry. “The RBI works as a super regulator. The idea behind approaching them was to seek guidance for EPFO’s operations,” an official said.
The POSB was under the purview of the Ministry of Finance and has been operating as an agency that is covered under the Payment and Settlement Systems Act, 2007. There is already RBI’s authority over the payment-related functions of the Bank given that it comes under the 2007 Act.
The Department of Posts has maintained that technology management of POSB operations has been handed over to India Post Payment Bank from August 2022, which is regulated by the RBI. The proposed new MOU with RBI for the POSB is aimed at undertaking “a review of the internal processes”.
This comes in the wake of the audit scrutiny of the Department of Posts’ savings bank operations last year revealing 60-odd cases of misappropriation of public money in post offices spread over 14 postal circles.
Audit reports showed “manual manipulation or alteration” of the Sanchay Post database by officials. The failure of the head post offices in implementing internal checks for prevention of fraudulent activities in operation of Post Office Saving Bank Schemes has been cited as a reason for this new request for RBI intervention.
A nudge for the move also came from a Parliamentary panel, which was informed of the “large volume of transactions involved in the POSB” and an oversight by the RBI for undertaking a review of “the internal controls and checks” needed to be instituted at prescribed intervals to prevent fraudulent activities in operation of Post Office Savings Bank.
This recommendation for the Department to enter into an MOU with RBI is learnt to have been sent to the Department of Economic Affairs “for necessary guidance and inputs”. When contacted, a senior Finance Ministry official said they were not in receipt of this proposal but did not provide an official comment.
The RBI did not respond to queries sent by The Indian Express on the Government move.
An internal audit report had flagged the mismanagement across postal circles. Subsequently, on May 2, 2024, details of punitive action taken against officials in the Department, who allegedly failed to ensure implementation of internal checks in these cases, were listed out in the wake of the audit report.
In these 60 fraud cases, a total number of alleged offenders, including prime offenders (108), co-offenders (46) and subsidiary offenders (1,018), were identified for disciplinary action.
The number of offenders against whom action was completed was pegged at 718. The offenders against whom action had been initiated was said to be 267 while there were 187 offenders against whom action could not be taken due to either death or retirement.
These numbers include some overlaps. In all, a total of 985 alleged offenders, “who had committed fraud and sub offenders who had failed to ensure implementation of the internal checks codified for preventing fraudulent activities in operation of POSB schemes”, have been punished severely, the Department of Posts said in its submission to the Parliamentary panel.
Both the Post Office Savings Bank and the EPFO have significant assets under management, being the custodian of public money.
The EPFO manages Rs 26 lakh crore for over 30 crore account holders, while the Department of Posts had more than 29.29 crore POSB accounts with an outstanding balance of Rs 12.56 lakh crore under Post Office Savings Bank schemes, as per government data updated till December 2021.
For the EPFO, the RBI has recommended separation of regulatory and fund management functions citing potential conflict of interest due to the dual role of managing various funds and regulating similar provident fund trusts by other entities.
Also, the RBI has flagged anomalies in the process of returns distribution by the EPFO, stating that it is not based on accrued income, and the accounting policy does not recognise losses and provisioning by charging released income. It has also pointed out that the EPFO assumes a held-to-maturity portfolio where all assets are held at cost until redemption and is not doing marking-to-market.
The central bank has also advised the EPFO to conduct a scientific and rigorous actuarial assessment of its liabilities vis-à-vis assets separately for all its schemes.
According to the RBI, EPFO needs to take a “considered and gradual approach” to diversify, including increasing exposure to equities and other asset classes, to enhance returns and mitigate the yield trap, and manage risk through phased investments, strict risk controls and regular portfolio reviews. At present, equity allocation of the EPFO stands at 15 per cent of the fresh accretions.
The EPFO invests 45-65 per cent in government bonds and 20-45 per cent in corporate debt. It can invest a minimum of 20 per cent in corporate bonds, which can go up to 45 per cent.