Norms set for pension clearing house

The pension fund regulator is expected to set an asset handling criterion of Rs 1,00,000 crore for a company to qualify as the central recordkeeping agency (CRA) along with an experience of at least five years in central record keeping and semi-regulatory functions.

The proposal has been stated in a paper issued by the Invest India Economic Foundation, which is working as the consultant for the finance ministry on the pension sector.

The paper says any foreign or domestic bank, stock exchange or anyone providing depository services can respond to the expression of interest (EoI) to be issued by the Pension Fund Regulatory and Development Authority (PFRDA) this month.

The applicant must also have a minimum net worth of Rs 50 crore.

A large number of mutual funds, along with the National Securities Depositories Ltd, UTI-ISL and CSDL are expected to bid for the CRA licence. The licence will be valid for a period of five years.

The new pension regime envisages that the CRA will act as the clearing house for all pension deposits and withdrawls from the pension fund.

All funds from the depositors will be routed to the pension fund managers from the contributors through this agency.

As per the schedule laid out in the consultation paper, once appointed, the CRA will have to put in place its systems by July 1, 2004.

The paper has also said that while no audit firm shall at any time hold equity stake in the CRA, a pension fund can hold up to 10 per cent of the equity capital of the entity.

The CRA shall not be allowed to invest in stockmarket. If a consortium bids for the role of the CRA, the lead bidder must always hold at least 51 per cent equity in the venture.

The paper says the PFRDA expects to receive the responses to the draft and issue the final expression of interest before the end of this month.

The EoIs must include a technical proposal and a financial bid separately, with the former carrying a weightage of 80 per cent in evaluation.

The selection of the CRA is expected to be completed by April 3, after which the PFRDA will move on to selection of the pension fund managers, the paper says.

What is required

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• The applicants for the central recordkeeping agency must have a minimum net worth of Rs 50 crore
• A number of mutual funds are expected to bid for the licence
• The CRA will have to put in place its systems by July 1, 2004
• A CRA shall not be allowed to invest in stock market