In a significant reform aimed at democratizing retirement savings, India's pension regulator has paved the way for major banks to directly enter the pension fund management arena. The Pension Fund Regulatory and Development Authority (PFRDA) board has granted in-principle approval for scheduled commercial banks to establish and manage pension funds under the National Pension System (NPS).
Breaking Down Regulatory Barriers
Announced by the finance ministry on Thursday, this strategic move is designed to dismantle existing regulatory hurdles that have historically restricted banks from full participation in the pension sector. Previously, banks faced a steep entry requirement of needing a company with at least ₹50,000 crore in assets under management (AUM) to sponsor a pension fund. This forced them to operate through their mutual fund or insurance subsidiaries.
"The current requirement... is a limiting factor, especially for banks that don't have (that level of) AUM to directly set up a pension fund management company," explained a senior official from a pension fund company, who spoke on condition of anonymity. The new framework replaces this with a clearly-defined eligibility criteria based on a bank's net worth, market capitalization, and overall prudential soundness, aligning with Reserve Bank of India (RBI) norms.
Expected Impact: Wider Reach and Stronger Competition
The direct entry of well-capitalized and systemically-robust banks is anticipated to have a multi-fold positive impact. Firstly, it is expected to significantly deepen the distribution network for the NPS, as banks can leverage their vast branch networks and customer relationships. Secondly, it will increase competition among pension fund managers, potentially leading to better services and innovation for subscribers.
"Banks have been keen to directly enter the pension fund business," the statement noted, referencing ICICI Bank's earlier move to seek RBI approval for full control of ICICI Prudential Pension Funds Management Co. Ltd. The PFRDA believes these reforms will foster a more competitive, well-governed, and resilient pension ecosystem, ultimately improving long-term retirement outcomes and old-age income security for millions of Indians.
Parallel Reforms: New Fee Structure and Board Appointments
In a related development, the pension regulator has also revised the investment management fee (IMF) structure for pension funds to protect subscriber interests. This revised slab-based fee, effective from 1 April 2026, introduces differentiated rates for government and non-government sector subscribers. It will also apply to schemes under the multiple scheme framework (MSF), with the MSF corpus being counted separately.
Furthermore, the finance ministry announced the appointment of three new trustees to the board of the NPS Trust. The newly inducted members are:
- Dinesh Kumar Khara, former Chairman of State Bank of India (designated as the Chairperson of the Board).
- Swati Anil Kulkarni, former Executive Vice President of UTI AMC trustee.
- Dr. Arvind Gupta, Co-founder and Head of Digital India Foundation.
The ministry stated that these comprehensive changes are aimed at aligning the pension system with evolving public aspirations, international benchmarks, and the goal of expanding coverage across corporate, retail, and gig-economy segments. Detailed norms for bank participation are expected to be notified separately by the ministry and will apply to both new and existing pension funds.
