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RBI clarification on pension fund will bring smiles to non-resident Indians

New Delhi - Banks confident new investment scheme will appeal to NRIs in the Gulf.

India's pension fund regulator is confident that with the Reserve Bank of India (RBI) clarifying that there are no issues relating to NRI investments in the National Pension System (NPS), overseas Indians will respond positively to the scheme.
"We sought clarifications from the RBI on some points and we received a positive response from the central bank," Hemant Contractor, chairman, Pension Fund Regulatory and Development Authority (PFRDA), told Khaleej Times.
"We have strategised to have a focused approach on this sector, as we feel that NRIs should be provided with a platform where they can save in their working age and plan for their future."
Contractor agrees that Gulf-based NRIs, who have close links with India, will gain substantially by joining the NPS.
"It is a highly efficient, technology-driven system to save small amounts today, to build a fund for life's second innings," says Contractor. "The investments made under NPS will help NRIs in savings for their old age income security."
The PFRDA has launched a major awareness initiative through various channels about the availability of NPS for NRIs. It recently held a conference at which banks (and other 'points-of-presence', or interfaces with customers) were sensitised about the product and made aware about the steps taken by the regulator for ease of operation by NRIs.
"Banks have been advised to register and activate all their NRI branches for offering NPS account to their NRI customers," notes Contractor. "With these steps, we feel that NRIs will respond positively and will join NPS."
Banks are also confident that the new scheme would appeal to NRIs, especially those in the Gulf. Arundhati Bhattacharya, chairman, State Bank of India - the country's largest lender - told Khaleej Times that SBI would definitely tap the Gulf market.
"This is an ideal product for NRIs in the Gulf, who unlike overseas Indians in the US or the UK do not have any fallback option by way of social security," she points out. "They need some such option when they return to India. They need to put some money aside for the long haul. And we at SBI have been around for 208 years, and expect to be around for the long haul."
SBI Pension Funds Pvt Ltd, a subsidiary of the bank, is one of the three pension fund managers appointed by the regulator to manage the corpus of central government employees enrolled under the NPS. It has also been appointed as pension fund manager, along with six others, to manage the corpus under the Citizens Pension Scheme.
Bhatacharya points out that the SBI subsidiary has the largest corpus, adding up to about Rs340 billion and it gives the best returns in the market of around eight to nine per cent.
"If NRIs start investing reasonable sums at an early age, they can definitely look forward to receiving steady returns when they turn 60," she says. "This is a risk-mitigating product and we hope to bring it to the Gulf NRIs soon."
S.K. Kalra, executive director and managing director and CEO (additional charge), Andhra Bank, feels the recent RBI clarification on the matter will ensure increased NRI investments in the pension scheme. "We are working on facilitating NRIs to invest in NPS and will soon come out with detailed operational guidelines," he told this paper. "This scheme will be more beneficial to NRIs who plan to return to India. This is a very lucrative investment option generally not available on a broader basis."
Contractor says that earlier there was some ambiguity about the type of account from which an NRI could contribute to the NPS and about repatriation of the amount at the time of exit. "We took up the issue with the RBI, which clarified that there is no issue of either acceptance of contributions by NRIs under NPS and also on repatriation of the amount at the time of exit," he adds.
Assets under management under the NPS added up to Rs905.91 billion last month, revealed Contractor. With the government offering incentives - additional tax deductions on investment of Rs50,000 under the NPS were announced in the budget - Contractor expects an impetus to the scheme over the coming months.
nithin@khaleejtimes.com