The newly empowered pension regulator has called for fresh bids for pension fund managers as the process through which the existing eight PFMs were selected last year raised many eyebrows and had to be undone.
According to official sources, the Pension Fund Regulatory and Development Authority (PFRDA) has just initiated a competitive bidding process for selection of the PFMs seeking those agreeing to levy the lowest fund management fee. The existing PFMs will have to re-bid to retain their mandate.
The process is part of the regulator's effort to roll back some of the steps taken by former chairman Yogesh Agarwal, which have come under the scanner of authorities. PFRDA, under Agarwal, had appointed new pension fund managers based on a set of criteria but sans the competitive bidding process. Agarwal had also raised fund management fees steeply from 0.0009% to up to 0.25% after some of them raised their expenses including wages and salaries, to justify higher fees.
"These deviations have come under the scanner of the Central Vigilance Commission and Comptroller and Auditor General of India," a finance ministry official said.
Soon after the PFRDA Bill was passed in September, the finance ministry asked Agarwal to step down before the completion of his term.
"Some of the earlier decisions like hiking fund management charges are now being undone. The request for proposal for (selection of PFMs) has already been called for and the last date for receiving the bids is February 14. After the technical and commercial bids, the letters of intent will be issued to shortlisted PFMs on March 4," an official familiar with the development told FE.
The three existing PFMs for the NPS of government employees are required to submit commercial bids only, while others will have to submit both technical and commercial bids.
PFRDA has over the years registered 8 PFMs promoted by LIC, SBI, UTI AMC, ICICI, HDFC, Kotak Mahindra, Reliance Capital and DSP Blackrock for managing the funds of private Sector NPS. Three PFMs promoted by PSU financial institutions LIC, SBI and UTI AMC manage the NPS corpus of government employees.
The regulator now wants to select PFMs through a transparent and competitive bidding process based on who quotes the minimum fund management fees.
"The proposed appointment, under the current RFP process, shall be valid for a period of 5 years, and the successful bidders appointed as Pension Funds shall have to obtain/retain validity of a registration certificate after satisfying/continuing to satisfy the eligibility criteria as may be specified under the PFRDA Act and/or rules or regulations framed from time to time for continuing its operations as PF, failing which, it will cease to act as PF and the appointment/registration will be liable to be withdrawn/cancelled," the regulator said.
While PFMs have to submit their respective bids for fund management fees, the selected players will have to accept the lowest bid to qualify as PFMs.
NPS was initiated by the government in 2004 as part of the reform to switch over to a defined contribution scheme from the earlier defined benefit scheme, to reduce the future pension liability. Central government employees recruited since 2004 were mandatorily offered NPS.