National Securities Depository Limited (NSDL) is set to lose its monopoly over the record-keeping business of the New Pension Scheme, under the Pension Fund Regulatory and Development Authority (PFRDA), to players like CAMS, Central Depository Services Limited (CDSL)and Stock Holding Corporation of India (SHCIL). Breaking away from its stance of retaining a single central record-keeping agency (CRA), the PFRDA Board has decided to invite fresh expressions of interest from prospective players to compete with NSDL. However, unlike the first time, private players will now be welcome.

?We have decided that we will go in for a second CRA. The idea is to bring in competition. If you are givinga choice to individuals for fund managers, they should also get a choice for a record-keeper,? Dhirendra Swarup, PFRDA chairman told FE. The PFRDA is hoping that the competition will drive down NSDL?s high costs?just like it helped slash fund managers? fees from 0.03%-0.05% to an astonishing 0.0009%

The NSDL?s high annual record-keeping costs of Rs 470 per account is seen as one of the key reasons for the New Pension Scheme?s slow take-off since it was opened up to citizens this May?only 2,775 workers have signed up.

The decision to appoint a second CRA is supported by the finance ministry, whom the PFRDA had approached for bearing the CRA cost for all citizens, not just civil servants. While the ministry is examining if budgetary support can be provided for CRA fees, it is in favour of introducing competition to reduce costs.

?Rather than paying the CRA costs for each individual, we will instead provide the agency budgetary support to meet its capital costs. At the same time, once the PFRDA Bill is cleared, the regulator should look at appointing another CRA as competition is the best way to bring down costs,? a senior finance ministry official told FE. NSDL?s persistent haggling over reducing costs for CRA Lite?a record-keeping mechanism envisaged for a new low-cost pension scheme for the masses to be launched in March 2010 – only emboldened PFRDA?s resolve to break its monopoly. While the PFRDA has been pushing for an account opening fee of Rs 30 and annual charges of Rs 60, the NSDL wanted the fee to be kept at Rs 35 and Rs 75.

The PFRDA board finally approved NSDL?s CRA Lite costs, but has decided to let new players quote a combined fee for running both the main CRA and CRA Lite. ?The board has accepted NSDL?s low-cost fee at Rs 35 for opening accounts and Rs 70 for annual maintenance, as we have to launch the scheme immediately. We hope that it will go down further drastically as we will have both models offered by both the CRAs,? Swarup said.

Moreover, the NSDL is learnt to have taken a very rigid stance on allowing states to migrate their employees? pension contributions. The issue came to the fore with Karnataka planning to log on to the PFRDA architecture, but is expected to crop up when other states join the NPS as well. Of the 23 states that have committed to join the NPS, only three have transferred their employee details and funds.

Karnataka, which received Cabinet approval earlier this month to join the NPS, wants to allow its 50,000 employees to pay their contribution arrears for the last three years (from April 1, 2006) in installments. But the NSDL may not be able to accommodate this demand as its software will not be able to process such data. It has already communicated this to the PFRDA and expressed its inability to modify its software for such a plan. On being contacted, Karnataka?s additional chief secretary, Sreenivas Murthy said, ?We have given the option to employees to pay their arrears in installments. We don?t see this as a problem to the CRA, but if it arises, we hope to work it out.?

Karnataka plans to join the NPS immediately and its 50,000 employees will be contributing about Rs 100 to 150 crore to the corpus. But other states will have similar problems as none of them may be able to provide all arrears in one go.

PFRDA?s decision to rope in a new CRA is helped by the fact that at least two players have expressed willingness and ability to deliver the same outcomes at a tenth of NSDL?s cost, if not lesser. Some of these players had expressed interest when PFRDA had first invited CRA bids, but had lost out as the tender was restricted to public sector entities. Players like Computer Age Management Services (CAMS) and CDSL had been disqualified because they were private players. Though SHCIL made the cut as a public sector firm, it lost out to NSDL on technical grounds.

?With the field now being opened to the private sector, the players that couldn?t compete last time can apply now,? Swarup told FE. Swarup was speaking to FEon his last day as PFRDA chairman. Additional Secretary in the Department of Financial Services G C Chaturvedi has assumed additional charge of PFRDA from Monday.

13 PFRDA chairman probables

Revenue secretary PV Bhide, IRDA member R Kannan and Tariff Commission member secretary Raghubir Singh are among the thirteen names in the reckoning for the PFRDA chairman?s post, which fell vacant on Saturday with Dhirendra Swarup?s retirement. A decision on the next chairman will be taken by Prime Minister Manmohan Singh soon, even as additional secretary in the department of financial services, GC Chaturvedi, assumes additional charge of the PFRDA for now.