Banks are showing interest in becoming pension fund managers: PFRDA chairperson S. Ramann

India’s pension fund regulator has received enquiries from two banks to act as pension managers, two months after it allowed lenders to operate as such, a top official said.

“Two banks have shown interest (to act as pension fund managers), and a few others that are sponsors of mutual funds have also shown interest,” said S. Ramann, chairperson, Pension Fund Regulatory Authority (PFRDA), in a roundtable with media in Mumbai on Friday.

Ramann said that when the regulations were written, it was felt that only mutual funds and insurance companies had experience handling money, while banks had none.

“But over the years, we’ve seen banks develop very large treasury portfolios, and we felt banks are very competent and have the required experience (in managing pension money),” Ramann said.

Pension funds and the NPS

As of now, there are 10 pension fund managers in India.

The chairperson also said pension funds are very capable of creating their own distribution channels.

For now, distributors are not so keen on selling National Pension Scheme (NPS) as the overall costs an investor has to pay for a non-government NPS subscriber are capped at a very low 0.3% of the total assets. Meaning distributors cannot make much in commissions.

Compare this to a mutual fund, where the expense ratio is capped at 2.05%, so distributors can earn much higher commissions by selling a mutual fund scheme than by selling an NPS scheme.

“Many large banks see this (NPS) as a viable revenue segment, and the expectation is that large banks, with their existing customer base, will bring more of those customers into the NPS,” Ramann said.

To be sure, the overall cost for non-government subscribers was increased from 0.03% earlier to 0.3%.

Ramann said if the mutual fund industry has already shown how it can partner with many different distributors, then even pension funds are very capable of creating their own distribution channels.