What changed
The Master Circular updates the previous 2006 version by incorporating all instructions on para-banking activities issued up to June 30, 2007. It consolidates guidelines for pension fund management by banks, among other activities. No new standalone PFM rules were introduced; the circular serves as a compilation.
What it means for you
Banks can offer pension fund management services as a para-banking activity, subject to RBI approval. This allows banks to diversify revenue streams and deepen customer relationships. Compliance with investment limits and prudential norms is mandatory to avoid regulatory action.
What you must do
- Review the Master Circular to ensure your bank's PFM operations align with consolidated guidelines.
- Obtain prior RBI approval before commencing or expanding pension fund management services.
- Monitor investment ceilings and prudential norms applicable to PFM activities.
- Update internal policies and training materials to reflect the 2007 circular's requirements.
Who it affects
All scheduled commercial banks (excluding RRBs) offering or planning PFM services, Bank treasury and compliance departments, Bank subsidiaries involved in pension fund management
What investment limits apply to banks' PFM activities?
Under Section 19(2) of the Banking Regulation Act, 1949, a bank cannot hold shares in any company exceeding 30% of that company's paid-up share capital or 30% of its own paid-up share capital and reserves, whichever is less. Additionally, investment in a subsidiary, financial services company, etc., is capped at 10% of the bank's paid-up share capital and reserves, and total investments in all such entities cannot exceed 20% of the bank's paid-up share capital and reserves. Investments classified as 'Held for Trading' and not held beyond 90 days are excluded from the 20% cap and do not require prior RBI approval.