Coping with lockdown: PFRDA may soon tweak asset classification norms for pension sector

KR Srivats New Delhi | Updated on April 20, 2020

PFRDA Chairman Supratim Bandyopadhyay (File photo)

Regulator looking to match RBI’s measures for banking sector; seeks pension fund managers’ views

With economic activity coming to a standstill due to the lockdown, the Pension Fund Regulatory & Development Authority (PFRDA) will soon take a call on changing the asset classification norms for the pension sector, a top official said.

The PFRDA will, in the next few days, provide guidance on how pension fund managers (PFMs) should treat the defaults or downgrades — during the lockdown — that may arise on the instruments in which pension monies have been invested, Supratim Bandyopadhyay, PFRDA Chairman, told BusinessLine.

His remarks are significant as they come on the heels of the RBI’s recent measures to help the economy, including an asset classification standstill for all accounts for which lending institutions decide to grant moratoriums and which were standard as on March 1, 2020.

“The NPA classification for bank loans was three months. Now they (RBI) are telling the lockdown period should be excluded, technically giving six months for the classification of a loan into an NPA. We have also reached out to our PFMs, asking them whether they require any such dispensation from the PFRDA,” Bandyopadhyay said.

On the same page as RBI

For example, he said, if company A had taken a a bank loan and also raised monies via non-convertible debentures (NCDs) from pension funds, it may face a cash crunch (due to the lockdown) not only for the repayment of bank loans, but also for servicing the NCDs.

“With the RBI already allowing them some relaxation for the loan part, as pension regulator we need to see if some dispensation should be provided for the market instruments in which pension monies have been invested. We want all regulators to be on the same page,” Bandyopadhyay said.

Currently, the PFRDA has separate asset classification norms for the pension sector. These are largely drawn from the RBI. “Our norms are in line with RBI norms. So, if the RBI changes its asset classification norms, we too would have to review our position. We are talking to PFMs to see if it is required immediately or in some point of time (later),” he said.

Pointing out that there is a cash flow mismatch in the economy, Bandyopadhyay said the cash flow cycle is getting longer and longer for many industries amid the pandemic.

On an overall basis, a little less than 30 per cent of the NPS (National Pension Scheme) corpus is invested in bonds and debentures including instruments of companies with the highest ratings.

Lag effect

“All regulatory bodies are having a close watch on the situation. There is always a lag effect on the economic impact of a pandemic. It’s a new experience for all of us and most of us are facing this for the first time in our lives. All the regulators in the financial sector are working in unison,” he said.

Bandyopadhyay further said the PFRDA has given PFMs one more month’s time — up to May 31 — to finalise their accounts for FY20.

Already, the pension regulator has allowed NPS subscribers to withdraw money for the treatment of specific illness including Covid-19. For Atal Pension Yojana (APY) subscribers, it has deferred the auto-debit of subscribers’ contribution from their savings bank accounts till June 30.

Published on April 20, 2020

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