Money & Banking

Now, PFRDA opens doors for more custodians to enter pension space

KR Srivats New Delhi | Updated on September 26, 2021

Relaxes existing regulations; RFP under new norms likely soon

Pension regulator PFRDA has now paved the way for more players to offer custodial services in the domestic pension market. It has now amended its existing 2015 ‘Custodian of Securities’ regulations, relaxing the entry norms specified earlier.

The relaxation has altered an earlier stipulation requiring a pension fund or its sponsor, trustee bank or a Central record-keeping agency, to hold directly or indirectly not more than 50 per cent shareholding in the custodian.

With the latest change, PFRDA will entertain applications for custodial services licences even in cases where the sponsor, associates or holding company of the applicant, has more than 50 per cent holding in the aspiring custodian entity.

Conditions to be met

However, the conditions that need to be met for this include the net worth 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.

The PFRDA will soon come out with a Request for Proposal (RFP) with new relaxed norms, said sources. Currently, StockHolding Corporation of India is the sole custodian of securities for pension assets.

The pension regulator is keen that more players enter the custodial services space, given the huge increase in pension assets in recent years. Pension assets under management (AUM) are recording compounded growth of over 30 per cent, and are expected to touch ₹7.5-lakh crore by end March this fiscal. Pension AUM has already crossed ₹6.5-lakh crore.

Meanwhile, the PFRDA has also done away with the stipulation that required applicants (for licence of custodian) holding of assets under custody on the date of application to be at least equal to the total AUM of NPS as on March 31 of the preceding financial year.

Now, the PFRDA has said that the applicant’s minimum holding of assets under custody on the date of application would be defined under the selection process. These changes are expected to help players such as State Bank of India, HDFC Bank , ICICI Bank and Axis Bank, throw their hat in the custodial services ring, said a pension industry observer.

Published on September 24, 2021

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