The Pension Fund Regulatory and Development Authority has approved, in principle, a framework that will allow banks to sponsor pension funds managing National Pension System assets. The decision is intended to broaden participation in the pension fund management market, increase competition and enhance protections for subscribers.
India NPS pension funds set to open to banks
Under the new framework, banks will no longer be limited to acting as points of presence for NPS. They will be permitted to set up and sponsor pension funds, provided they satisfy clearly defined eligibility criteria. Those criteria will cover measures such as net worth, market capitalisation and prudential soundness, and will be aligned with norms set by the Reserve Bank of India. PFRDA said detailed guidelines will be issued separately and will apply to both new and existing pension funds.
Currently there are ten pension funds registered with PFRDA. Banks now acting as PoPs handle subscriber registrations, contribution collection and related services. Opening sponsorship to banks could encourage new entrants, bring greater scale and operational capability, and exert downward pressure on fees through competition. PFRDA emphasised that eligibility tests are designed to ensure that only well-capitalised and systemically robust banks enter the market.
Regulatory clearance is likely to spur consolidation and innovation in fund management services for the National Pension System. Subscribers may benefit from improved distribution, technology integration and potentially lower costs, but the regulator will need to maintain strict governance and risk controls to protect long-term retirement savings.
In a related move, PFRDA announced the appointment of three trustees to the board of the NPS Trust after a formal selection process. Dinesh Kumar Khara, former chairman of State Bank of India, will serve as 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 appointments are intended to strengthen oversight of NPS assets as the sector prepares for change.
PFRDA also revised the Investment Management Fee structure for pension funds, effective 1 April 2026. For government sector employees under the Composite Scheme, Auto Choice and Active Choice G-100 options the IMF remains unchanged. For non-government sector subscribers the IMF will be tiered: 0.12% for assets under management up to Rs 25,000 crore, tapering to 0.04% for AUM exceeding Rs 1.5 trillion. The revised fee schedule is designed to reward scale and efficiency while keeping costs fair for smaller funds.
Market participants will now await the detailed operational guidelines that PFRDA will publish. Those rules will determine the timetable for bank-sponsored pension funds, licensing conditions and transitional arrangements for existing funds. Banks that meet the RBI-aligned criteria will have a clearer route to participate in NPS fund management, which could widen choice for subscribers and reshape the asset management landscape for retirement savings in India.
Key Takeaways:
- PFRDA has cleared a framework allowing India NPS pension funds to be sponsored by banks, aimed at boosting competition and protecting subscribers.
- Banks will need to meet eligibility criteria tied to net worth, market capitalisation and prudential soundness aligned with RBI norms.
- PFRDA appointed three new NPS Trust trustees and revised Investment Management Fees for non-government subscribers effective 1 April 2026.
