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Pension regulator PFRDA will review its current risk management guidelines for the pension sector in the wake of the ongoing IL&FS crisis and debt repayment defaults, a top official said.
Although the current concern is only with respect to corporate bonds, the PFRDA plans to review its risk management framework across the investment spectrum.
“In the wake of IL&FS, we will issue fresh guidelines toning up risk management framework. We have to sharpen up a few areas,” Hemant Contractor, Chairman, PFRDA, told BusinessLine .
Contractor said about ₹20 crore worth investments in IL&FS bonds have fallen due and not honoured till date. “This investment amount of ₹20 crore is across several pension fund managers. The amount is yet to become an NPA,” he said. The PFRDA will closely look to ascertain if pension fund managers are to be guided only by the credit ratings before going in for investments in pension funds, he added.
Rating factor
“We will take a close look on whether to rely only on credit rating agencies or introduce more parameters for monitoring the investments,” he said.
In all, the total exposure of pension monies to IL&FS group is quite minuscule at less than 0.5 per cent of the pension industry’s assets of about ₹2.7 lakh crore. “The overall exposure of pension funds to IL&FS is about ₹1,200 crore. Most of the investments are long-term in nature,” Contractor said.
He said pension fund managers have been advised to try and exit from IL&FS at the first available opportunity. “Right now they cannot exit as they will have to take a hit since prices have come down. Now that the government has replaced the existing board , we hope IL&FS will recover and we may not be required to take a hit on the rest of the investments,” he said.
Other parameters
“Since they (IL&FS bonds) were AAA rated, they were considered to be good risk. Like everybody else we were also surprised how credit rating agencies were not able to catch on to what is happening,” he said. “Today, market reliance is mainly on credit ratings. We will now take a close look on whether we should rely only on ratings or bring in other parameters.”
Contractor highlighted that pension fund managers themselves are required to do their own due diligence before making investments in bonds.
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