The Pension Fund Regulatory and Development Authority (PFRDA) has approved in principle a framework that will allow banks to independently sponsor pension funds managing assets under the National Pension System (NPS). The move is intended to strengthen the pension ecosystem, increase competition and enhance protections for subscribers.
Under the new approach, banks that wish to sponsor pension funds will need to satisfy a clearly defined eligibility criterion. That criterion will be based on net worth, market capitalisation and prudential soundness, and will be aligned with existing Reserve Bank of India norms. PFRDA said detailed guidelines will be published separately and will apply to both new entrants and existing pension funds.
India NPS reforms: what banks must meet to sponsor funds
At present, banks participate in NPS as points of presence, handling subscriber registrations, contributions and administrative services rather than running fund management operations. Allowing banks to sponsor pension funds directly could reshape the competitive dynamics of the market, which currently comprises 10 registered pension funds under PFRDA oversight.
PFRDA emphasised that the eligibility rules are designed to ensure only well capitalised and systemically robust banks are permitted to enter the pension fund management business. The regulator’s insistence on alignment with RBI prudential standards is intended to protect subscribers and preserve financial stability as new sponsors enter the market.
The regulator also used Thursday’s board meeting to appoint three new trustees to the NPS Trust. The appointments include former State Bank of India chairman Dinesh Kumar Khara, who has been named chairperson of the NPS Trust Board. The other trustees are Swati Anil Kulkarni, executive vice-president at UTI Asset Management Company, and Dr Arvind Gupta, co-founder and head of the Digital India Foundation. The new trustees bring a mix of banking, asset management and digital policy experience to the board.
Separately, PFRDA announced a revision of the Investment Management Fee (IMF) structure for pension funds effective from 1 April 2026, introducing differentiated rates for government and non-government sector subscribers. Fees for government sector employees under the Composite Scheme, Auto Choice and Active Choice G-100 options will remain unchanged.
For non-government subscribers, the IMF will be tiered by assets under management. The fee will be 0.12% for AUM up to Rs 25,000 crore, tapering progressively to 0.04% for AUM above Rs 1.5 trillion. The revised structure aims to align charges more closely with fund scale and deliver cost benefits to subscribers as asset pools grow.
Industry participants are likely to watch closely how quickly banks move to sponsor pension funds once formal guidelines are published. The changes could broaden distribution and product innovation in the NPS market, while intensifying competition among pension fund managers. For subscribers, the prospect of new entrants and a more graduated fee schedule may lead to lower costs and more choices over time.
PFRDA’s next steps will include publishing the detailed sponsorship guidelines and operational rules for both new and existing pension funds. Market observers say the framework will need robust governance and compliance safeguards to ensure that the attraction of scale does not compromise long-term subscriber outcomes.
Image: 
Key Takeaways:
- India NPS reforms permit banks to independently sponsor pension funds, widening competition in the NPS market.
- PFRDA will set eligibility based on net worth, market capitalisation and prudential soundness aligned with RBI norms.
- Investment Management Fee structure revised for non-government subscribers from April 1, 2026, with AUM-based tapering.
- New trustees appointed to the NPS Trust, including former SBI chair Dinesh Kumar Khara.
