The government fears that the returns offered by the Employees Provident Fund Organisation may jeopardise its existence and result in the Rs 60,000-crore (Rs 600 billion) organisation turning into a second Unit Trust of India.

"It is rather worrying and the ministry of finance is taking this stance consistently that it may result in a second UTI if the rates offered by the EPFO are higher than what it earns," U K Sinha, joint secretary, department of economic affairs in the finance ministry said. The Centre is also aware of the lack of transparency in the accounts of EPFO.

Addressing a two-day seminar in Mumbai, titled 'Indian Securities Market: New Benchmarks,' organised by the Federation of Indian Chambers of Commerce and Industry, Sinha said the ministry was trying to tackle the issue, and it was a question of sequencing.

Corporate India has raised grave apprehensions about the EPFO's ability to offer a high yield of over 9 per cent when corporates managing their own provident funds are dipping into their reserves to meet the shortfall. Corporates have to match the administered interest rate as set by the EPFO, a regulator-cum-participant.

Following the sharp fall in interest rates by almost 500 basis points over the last 20 months, the government has already advised the EPFO to review the administered returns.

Rather than reducing the rate, the EPFO recently decided to offer a bonus of 0.5 per cent this year to celebrate its anniversary, thereby maintaining the rate at 9.5 per cent.

This is despite the interest rate on special deposit scheme having fallen by 100 basis points to 8 per cent, where majority of provident funds have parked their corpus.

Nearly 80 per cent of the EPFO's corpus is blocked in SDS. The yield on the benchmark 10-year government paper has dropped nearly 500 basis points to around 5.6 per cent. Triple A-rated bonds of financial institutions and private corporates as well as PSUs are quoting well under 9 per cent.