The Reserve Bank of India (RBI) is not favourably inclined to allowing banks to foray into the pension business. The Insurance Regulatory and Development Authority (IRDA) has discussed the issue with the RBI brass last week. The insurance regulator was keen to offer pension fund management to banks as it feels that they could lend some credibility to the system.
"The faith that the customers put into banks, whose credibility is assured, will add to the credibility of the operations," N Rangachary, IRDA chairman, told Business Standard earlier. He added that this was in addition to their good reach through networking and branches that they have established across the country.
In a seminar organised by the Confederation of Indian Industry on pension fund management, IRDA member H O Sonig said, if banks were allowed by the RBI to enter pension fund business, they might be asked to set up subsidiaries for the purpose.
This is in order to make sure that the structure is not affected or that the liabilities of the pension business does not affect performance, he added.
"The central bank is in no mood to give direct relaxation to banks to venture into the insurance business," said Sonig.
Each application has been taken on a case-to-case approval. State Bank of India was the only bank to have been allowed to float a subsidiary with 74 per cent equity stake, while Punjab National Bank and Vysya Bank were allowed to have 15 per cent and 49 per cent, respectively.
Meanwhile, the IRDA is yet to take a view on whether or not to allow life insurance companies to undertake pension as part of the insurance business or to set up separate entities.
Sonig said, "As liabilities differ, the entire game and investment process too are different. Though under Section 211 of the Insurance Act, 1938, pension is a part of insurance and annuities can be provided by insurance companies, we have not decided whether the two ought to be treated as separate entities."
Moreover, for mutual funds to be allowed to participate in the pension fund business, either the Insurance Act is to be amended or a separate act for the pension business is to formulated, whereby the asset management companies provide annuity through their monthly income plans.
