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Mumbai, June 28 The Reserve Bank of India on Thursday said that banks can undertake pension funds management only through subsidiaries (set up for the purpose) with which the banks will maintain an ‘arm’s-length’ relationship and not departmentally.

In a notification, the apex bank said that the eligibility criteria for banks include net worth of not less than Rs 500 crore; capital-risk weighted assets ratio of at least 11 per cent for the last three years; return on assets of at least 0.6 per cent; net NPA level of less than three per cent; and “satisfactory” performance of subsidiaries.

In addition, the management of the bank’s investment portfolio should be good as per the AFI report of the RBI and there should not be any adverse remark in it involving supervisory concerns.

An ‘arm’s-length’ relationship between parent bank and subsidiary would mean that any transaction between the bank and the subsidiary should be at market rates.

However, the banks can lend their names to the subsidiaries to leverage their brands.

The bank should ensure that the subsidiary does not have online access to customers’ accounts.

Adequate safeguards between the systems of the bank and those of the subsidiary should be put in place, the apex bank said.

Further equity contributions by the bank to the subsidiary should be with the prior approval of the RBI and limited to 10 per cent of its paid-up capital and reserves.

The bank’s total investment by way of equity contributions in existing subsidiaries, the proposed pension funds subsidiary and those formed in future, together with portfolio investments in other financial services companies, should not exceed 20 per cent of its paid-up capital and reserves.

The bank should submit a business plan to the RBI highlighting the business projections of the subsidiary for the first five years so as to determine whether the subsidiary would be able to comply with the solvency margin as may be prescribed by the Pension Funds Regulatory & Development Authority and not fall back on the bank for augmenting its capital for the purpose.

The permission granted by the apex bank to a bank to set up such a subsidiary shall be without prejudice to the decision of PFRDA to permit the subsidiary to do the pension fund management business.

More Stories on : Pension Plans | Social Security | RBI & Other Central Banks

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RBI issues norms for banks to manage pension funds

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