India Allows Banks to Sponsor Pension Funds Under NPS
The Pension Fund Regulatory and Development Authority (PFRDA) has given in-principle approval for scheduled commercial banks to independently sponsor and manage pension funds under the National Pension System (NPS). This marks a major change in pension fund regulations, as banks were previously limited in their role within the pension investment ecosystem. Under the new framework, banks that meet eligibility criteria can set up and run their own pension fund management operations.
Eligibility and regulatory standards for banks
Banks wishing to become pension fund sponsors must satisfy specific conditions related to net worth, market capitalisation and financial soundness, aligned with guidelines from the Reserve Bank of India. These requirements are intended to ensure that only well-capitalised and stable institutions participate in managing long-term retirement savings. PFRDA will notify detailed eligibility norms separately before formal implementation.
Expected impact on pension sector competition
There are currently 10 registered pension fund managers under the NPS. Allowing banks to join as pension fund sponsors is expected to boost competition, provide subscribers with more investment choices and potentially improve service delivery and cost efficiency within the pension market. The move is part of broader reforms aimed at strengthening India’s retirement planning framework and expanding financial inclusion.
Broader NPS reforms underway
In addition to the bank sponsorship framework, the regulator is updating other aspects of the NPS infrastructure, including changes to investment management fee structures and expanded investment options for subscribers. These reforms aim to make the pension system more flexible, transparent and attractive to a wider range of investors.
