The government is likely to gradually wind up the country's largest unsecuritised special deposit scheme, which faces Rs 121,000 crore (Rs 1,210 billion) in redemptions from provident funds in June.

Almost 80 per cent of the corpus of the Employees Provident Fund Organisation and independent provident fund trusts is invested in the scheme.

The Centre is considering a three-pronged strategy to resolve the 25-year old special deposit scheme legacy: relax the withdrawal by provident funds; stop re-investing the interest paid to provident funds in the scheme; and issue dated government securities to replace the scheme's corpus over seven years.

The Centre had launched the scheme in 1975 with a maturity of 10 years. The interest rate was set annually.

In 1985, the government extended the scheme's maturity by 10 years. When the scheme matured again in 1995, the Centre extended it further. It froze fresh investments in 1997 and extended the repayment by a year.

On March 2, 1998, the finance minister issued a notification extending the scheme again by five years. With the June deadline approaching, the Centre is now seeking a lasting solution.

In the Budget for 2003-04, the Centre has not provided for any repayment to the provident funds. In fact, it has budgeted Rs 9,970 crore (Rs 99.70 billion) as interest payment to the funds at the rate of 9 per cent, only to be re-invested in the special deposit scheme.

Government officials said there would be no one-shot payment this year as well. While a notification would be issued shortly, they said, a formula was being put in place to extinguish the scheme's corpus over a period of time.