The Pension Fund Regulatory an Development Authority (PFRDA) has proposed allowing short lending of securities for the National Pension System (NPS) under the Securities Lending and Borrowing (SLB) Mechanism regulated by SEBI to optimise the returns to the subscriber. SLB is a legally approved medium for lending and borrowing of securities. Under SEBI regulations, all market participants including retail (except Qualified Foreign Investors) in the Indian securities market have been permitted to lend/borrow securities but only through an Authorised Intermediary(AI).
SLB enables lending of idle securities by the investors through the clearing corporation/clearing house of stock exchanges to earn a return through the same. Securities in the F&O segment are eligible for short selling. NSCCL (NSE Clearing Corporation) and BOISL ( BSE Clearing Corporation) are the only authorised intermediaries presently.
The Concept note on SLB floated by PFRDA comes as a follow up of the G N Bajpai committee report set up by PFRDA which submitted its recommendations in September 2014 to review the investment guidelines for the private sector for NPS. “The movement from the Directed investment regime to the Prudent investor regime shall entail not only easing of the ceilings for each asset class, but also allowing wider choice of instruments under each asset class across the board,” the Committee had said.
PFRDA has pointed out that SLB can provide an incremental return to lenders on an idle portfolio. So if an investor intend to hold it for long term, in the shorter term I could lend this whenever there is a demand and get additional return in terms of lending fees/additional return knowing that NSCCL/BOISL are the guarantors.
Insurance companies, banks, HNI, mutual funds and retail investors are currently participate in SLB as lenders.
Pension Funds can invest the contributions received from NPS subscribers/Atal Pension Yojana (APY) subscribers of NPS .