RBI extends nod for banks to foray in to PFM Business

Mumbai, June 29 (UNI) The Reserve Bank of India (RBI) has extended its nod to banks to carry out Pension fund management (PFM) business through subsidiaries set-up for the purpose, which will in turn help lenders to pool in funds through this path.

The country's largest public sector lender, the State Bank of India (SBI) has been shortlisted along with LIC, IDBI Capital and UTI Asset Management Company by the Pension Fund Regulatory and Development Authority (PFRDA) to qualify as fund managers.

''We are waiting for the necessary regulatory approvals to go ahead and have chalked out strategies for the business. However, I can't elaborate more on it at this stage'', the general manager of SBI M C Malay said.

In a notificaion issued yesterday, the Central Bank said that PFM should not be undertaken by banks departmentally. Banks have to set up seperate subsidiaries for the purpose.

''Banks intending to undertake pension fund management...should obtain prior approval of the RBI before engaging in such business..

The relative board note and resolution passed thereon approving the bank's proposal together with a viability report prepared in this regard may also be forwarded to us,'' the RBI directive stipulates.

The eligibility criterion set up for the banks intending PFM includes a minimum networth of Rs 500 crore, Capital to Risk Weighted Asset Ratio (CRAR) not less than 11 per cent, Return on Assets (ROA) of 0.6 per cent and Non-performing assets (NPAs) less than 3 per cent.

In order to initiate PFM, banks should also seek prior permission of the RBI for investing in equity for the purpose of setting up the subsidiary.

RBI has also said that the parent bank should maintain an ''arms length'' with the subsidiary and transactions should be made at ''market related rates''.

The parent bank has also been asked to lay down a comprehensive risk management policy for the group as a whole, including the subsidiary.

The funds will be invested in equities, equity-linked mutual funds, government securities and other money market instruments to avail higher returns.

UNI