Custodians for NPS: PFRDA sets minimum ₹1-lakh crore assets under custody for eligibility

KR Srivats New Delhi | Updated on September 27, 2021

Stipulates 5 years registration track record with SEBI on date of application

Pension regulator PFRDA has stipulated that entities aspiring to become a custodian of securities for National Pension System (NPS) and other schemes under its regulatory ambit should have holding of assets under custody of ₹1-lakh crore on the date of application.

Not only that, applicants for Custodian licence should have already been registered with capital markets regulator SEBI for the past five years on the date of application, going by the Request for Proposal (RFP) issued by PFRDA on Saturday for selection of Custodians for NPS and other schemes.

The proposed licence for Custodian awarded under the new process will be valid for a period of five years and PFRDA can appoint more than one custodian, the RFP highlighted. Applicants will have to put in their bid by October 18, according to PFRDA.

This RFP is expected to open the doors for the major financial sector players including HDFC Group, ICICI Group and State Bank of India group to enter the custodian space through their group entities. Hitherto, these players couldn’t enter the Custodial services market due to the rigid regulations prescribed by PFRDA in 2015.

Rigid norms

The regulations had prohibited sponsors of pension fund and its associates from holding directly or indirectly shareholding in excess of 50 per cent in an entity offering custodial services. Now, this stipulation has been relaxed.

The RFP states that a in the same group, where a sponsor of a pension fund, central recordkeeping agency, trustee bank or their associates are holding more than 50 per cent stake in the custodian applicant, then such custodian can apply for a licence with PFRDA so long as five conditions are met.

The conditions that need to be met for this include the networth of the sponsor, associates or holding company remaining at least ₹50,000 crore at all time.

The other conditions specified for the new regime include 50 per cent or more of the directors of the custodian should be those who do not represent the interests of the sponsor or its associates; neither the custodian nor the pension fund company shall be a subsidiary of each other; and no person should be the director of both the custodian and pension fund company. Some of these conditions are aimed at preventing conflict of interest situations, sources added.

It maybe recalled that the Pension Fund Regulatory & Development Authority (PFRDA) had, few days back, amended its regulations on ‘Custodians for Securities’ so as to enable more players to take up the role of custodians in the pension space.

Prior to this, there was only one player — StockHolding Corporation of India (SHCIL) — that performed the role of custodian in the pension market. Now even SHCIL has to get re-selected under the new process.

With the pension assets under management — which has recently crossed the ₹6.5-lakh crore mark — growing leaps and bounds, the regulator is keen that more players take up the role of custodians.

Published on September 26, 2021

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