Pension reforms: Private a/c money can go in IPOs

Also, extension coming for NRIs; real estate and infra investment trusts also being opened for parking; sub-panels to also report soon on Bajpai panel suggestions

The National Pension System (NPS) is set for another round of reforms, this time for private sector subscribers, likely to be cleared in a week.

Officials at the Pension Fund Regulatory and Development Authority (PFRDA) say in a new set of guidelines, the pensions of private sector subscribers would also be allowed to be invested in companies' Initial Public Offer (IPO, of equity). This would give a big investment boost to the IPO market.

“(Such) investment would be subject to a composite cap of 50 per cent that is applicable for equity investment,” said an official.

The fund manager would be required to do proper due-diligence before investing in a new offering.

Another set of investors in addition to government and private sector employees is also likely to be added, with non-resident Indians (NRIs) allowed to be a part of NPS.

“We had written to Reserve Bank of India (RBI) that NRIs could be allowed to invest in NPS. RBI has issued a clarificatory letter to us of the same nature. Even earlier, there was nothing preventing NRIs from investing in NPS but there was ambiguity. This letter by RBI removes that,” said Hemant Contractor, chairman, PFRDA.

The regulator plans to push the NPS product to NRIs in a big way, for which it is planning a detailed discussion with the banks that have a huge NRI client base. “We have already spoken to HDFC Bank, State Bank of India, Canara Bank, Federal Bank and other South India-based banks,” said an official.

The regulator had last month issued investment guidelines for government sector employees which reduced their exposure limits to government securities and increased it for private bonds. The watchdog would similarly come out with new investment norms for private sector employees. Among the other salient points, the pension funds of private companies would have reduced exposure to government bonds by five percentage points, from 55 per cent to 50 per cent, with an increase for corporate bonds from the earlier 40 per cent to 45 per cent.

Additionally, NPS fund managers would also be allowed to invest in Real Estate Investment Trusts and Infrastructure Investment Trusts, with a collective cap of five per cent, respectively. Equity investment for private sector employees would be retained at 50 per cent. There was a lot of discussion on raising the investment limit in equity beyond 50 per cent, based on the Bajpai committee recommendations. However, this round of changes in investment guidelines might not factor this in.

“The Bajpai committee is still under consideration. We have formed two sub-committees, deliberating on the various aspects. Their report is expected in another fortnight,” said an official.

These sub-committees are examining the Bajpai report on five key aspects -- valuation method, minimum assured return products, asset liability structure, pefromance benchmark for fund managers and risk-based management. As of last Friday, there 9.4 million subscribers with NPS, with overall assets under management (AUM) at Rs 88,000 crore. Of this, government sector subscribers are 4.26 million, with an AUM under then of Rs 79,000 crore. Private sector subscribers (including companies and the unorganised sector) are 0.7 mn, with AUM of Rs 7,000 crore.