A brewing duel between the countrys second largest non-banking financial institution & largest retirement fundthe Employees Provident Fund Organisation (EPFO)and Indias largest bank, State Bank of India, EPFOs sole banker and investment manager, has now reached a flashpoint.

Even as the process of abolishing SBIs monopoly in investing EPFOs funds is underway, EPFO has dismissed the findings of an audit report that has, more or less, given SBI a clean chit on its management of EPF monies. In fact, the EPFO boards finance & investment committee (FIC) is so dissatisfied with the audit that it has decided to refer (read complain about) the report to the countrys accounting regulator, Institute of Chartered Accountants of India (ICAI), for necessary action.

With returns on its portfolio dipping in recent times to around 8%, EPFO had last year blamed SBIs sub-optimal investment decisions for the low returns. SBI kept funds idling and invested large sums of money in its own term deposits, EPFO had stressed, even going on to say that the higher the deposits in SBI, the lower the returns. Alarmed, the FIC had called for a full-fledged investigation into SBIs fund management.

The auditor appointed last March is learnt to have first submitted a draft report without consulting the bank. A significantly modified report was submitted in September 2007, to which EPFO reacted with alacrity seeking more clarity on the auditors observations and stressing that SBIs reaction to most points was No comments.

When the final report was put up before FIC members recently, they concurred that the audit was not up to the mark as the auditors have not addressed the concerns of EPFO and have rather shied away from quantifying any notional losses.