Banks should float arm for pension fund business, says RBI

Only those banks which have net worth of not less than Rs 500 crore and credit adequacy ratio of up to 11 per cent during the last three years along with other qualifying parameters could approach RBI for the purpose, the RBI guidelines on banks undertaking PFM business said.

According to the RBI, composition of the board of directors of the subsidiary should be broad based and should be as per the guidelines, if any, prescribed by the Pension Fund Regulatory and Development Authority (PFRDA). “The parent bank should maintain ‘arms length’ with the subsidiary. Any transaction between the bank and the subsidiary should be at market related rates. Any further equity contribution by the bank to the subsidiary should be with the prior approval of the Reserve Bank and limited to 10 per cent of its own paid-up capital and reserves,” the RBI said.

The parent bank’s board should lay down a comprehensive risk management policy for the group as a whole including the subsidiary, incorporating appropriate risk management tools. “It should also ensure effective implementation thereof. The bank should evolve a suitable system to monitor operations of the subsidiary. The subsidiary should confine itself to the business of pension fund management and any other business, which is purely incidental and directly related thereto,” the RBI said.

Out of four entities shortlisted by the PFRDA for managing pension funds of employees of Union and most state governments, one is a bank — SBI — while others are LIC, IDBI Capital and UTI AMC.