PFRDA has taken a big decision to strengthen the NPS ecosystem. Under the new framework, scheduled commercial banks have been given in-principle approval to become independent sponsors of pension funds.
PFRDA: Pension Fund Regulatory and Development Authority (PFRDA) has taken a big and important decision towards further strengthening the National Pension System (NPS). The regulator has approved in principle a new framework, under which Scheduled Commercial Banks (SCBs) will now be able to independently become sponsors of pension funds.
This decision is being considered very important for the expansion and strengthening of the NPS ecosystem. This will not only increase competition in pension fund management, but will also provide more options for investors i.e. NPS subscribers.
What is the new structure of PFRDA?
This new framework approved by PFRDA focuses on removing some of the regulatory hurdles present in the existing pension ecosystem. Till now the role of banks was quite limited in pension fund management. They could not act directly as independent pension fund sponsors.
Under the new framework, scheduled commercial banks will be allowed to become independent pension fund sponsors to manage the assets of the NPS. This means that banks will now be able to directly enter into the pension fund management business, provided they meet the prescribed eligibility criteria.
Why was this change necessary?
The scope of NPS is continuously increasing. Private sector employees, government employees and self-employed people are joining NPS in large numbers. In such a situation, it became necessary to make pension fund management more strong, transparent and competitive.
PFRDA believes that the participation of banks will bring experience, capital and institutional strength to the pension fund industry. Banks are already part of the financial system at large and have good experience in risk management, compliance and governance.
Emphasis on security of NPS subscribers
However, PFRDA has made it clear that there will be no compromise on the security of NPS members i.e. subscribers in this framework. According to the regulator’s statement, adequate protection for investors has been ensured while removing all regulatory hurdles.
In this new system, the eligibility criteria will be kept very strict so that only strong and stable banks can become pension fund sponsors.
Eligibility conditions as per RBI norms
PFRDA has clarified that the Reserve Bank of India (RBI) norms will be taken into account to decide the eligibility of banks. Under this, parameters like net worth, market capitalization and prudential soundness of banks will be examined.
These conditions are intended to ensure that only adequately capitalized and systemically strong banks can sponsor pension funds. This will maintain the security and stability of NPS assets.
Detailed guidelines will be issued separately
PFRDA has stated that detailed guidelines related to this new framework will be notified separately. These guidelines will be applicable to new pension funds as well as existing pension funds.
This means that pension fund managers already working will also have to follow the new rules and standards. This will bring uniformity and transparency in the entire system.
NPS Trust Board strengthened
To further strengthen the pension system, PFRDA has also made important changes in the board of NPS Trust. Three new trustees have been appointed to the board following a formal selection process. The purpose of these appointments is to bring experience, expertise and better governance in the operations of the Trust.
Dinesh Kumar Khara becomes Chairman of NPS Trust Board
Among the new trustees, the name of former State Bank of India (SBI) Chairman Dinesh Kumar Khara is most prominent. He has been named chairman of the NPS Trust Board.
Dinesh Kumar Khara has vast experience in banking and financial sector. Under his leadership, better monitoring and strategic direction is expected from the NPS Trust.
Who are the other new trustees?
Two other members have also been included in the NPS Trust Board. These include Swati Anil Kulkarni and Dr. Arvind Gupta. Swati Anil Kulkarni has been the former Executive Vice President of UTI AMC. He has extensive experience in asset management and investment management.
Dr. Arvind Gupta is the co-founder and head of Digital India Foundation. Apart from this, he is also a member of the National Venture Capital Investment Committee of SIDBI Fund of Funds Scheme.
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