New players fight shy of pension sector

Written by Raj Kumar Ray | New Delhi | Updated: Jan 2 2013, 05:41am hrs
With passage of PFRDA Bill deferred again, companies adopt wait-and-watch approach

The delay in the passage of the pension Bill is keeping many new players, especially those planning to forge joint ventures with foreign firms, away from the sector. While the IDFC has decided to pull out, a few players, including DSP Blackrock, have shown interest in entering the pension sector, sources told FE.

The Pension Fund Regulatory and Development Authority (PFRDA) was earlier planning to allow the entry of more fund managers in November last year, but the deadline could not be met.

Selection of PFMs are in the process. Existing players also need to renew their licenses. The names of new players may be announced next month, an official said.

There hasn't been an overwhelming response as foreign players are awaiting the passage of PFRDA Bill, which was again deferred in the winter session. The Bill proposes the entry of foreign players with the same holding as it is for insurance sector, which is now at 26% and is proposed to be raised to 49% as per the insurance Bill.

In 2012, the PFRDA decided to grant licences on the basis of certain stringent eligibility criteria rather than auction based on the cost of managing the funds. Even existing players have to renew their certificates of registrations after complying with the new guidelines, which mandates a company to have a minimum networth of R25 crore, a three-year profit record and managing assets of at least R8,000 crore.

In 2007, the PFRDA allowed state-owned Life Insurance Corporation, State Bank of India and UTI AMC to set up pension fund companies and manage the long-term savings of government staff. After two years, PFRDA allowed four private players IDFC Pension Fund Management, ICICI Prudential Pension Funds Management, Kotak Mahindra Pension Fund and Reliance Capital Pension into the sector.

These PFMs now manage assets worth over R20,000 crore of 3.75 million subscribers in government, private and unorganised sectors. Only, IDFC decided to opt out.

Though foreign pension funds, banks, mutual funds and insurance companies were eager to enter the fast-growing pension sector, restrictions on the number of players and a selection criteria based on the lowest bid for fund management charges have deterred them.

Sensing this, the PFRDA in July 2012 abolished the bidding process and announced a list of eligibility criteria to allow new players.

While the regulator's eligibility criteria allows foreign participation directly or indirectly up to 26% as it is applicable for insurance companies the joint ventures directly with foreign partners may not be allowed unless the parliament passes the PFRDA Bill.

After P Chidambaram took charge of the finance ministry, he obtained a cabinet approval for financial reforms, the pension bill was part of the agenda.

The Pension Fund Regulatory and Development Authority Bill, which aims to empower PFRDA as a statutory regulator of the New Pension System (NPS) and allows 26% FDI among other reforms, was introduced in Parliament in 2005. It has approval of the standing committee headed by BJP leader Yashwant Sinha. The bill may be taken up in the budget session of Parliament.