BANKS CLEARED TO SPONSOR PENSION FUNDS AS NPS FRAMEWORK EXPANDS

PFRDA opens the door for scheduled banks to set up pension funds, reshaping the National Pension System from 2026

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In a significant reform aimed at widening pension coverage, the Pension Fund Regulatory and Development Authority (PFRDA) has approved a new framework that allows eligible scheduled commercial banks to independently establish pension funds and act as sponsors under the National Pension System (NPS).

Until now, NPS pension funds have been sponsored largely by life insurance companies and mutual fund houses. At present, 10 pension fund companies manage NPS assets totalling ₹15.95 lakh crore for nearly 2.1 crore subscribers, as of November 30, 2025. The revised framework is expected to introduce greater institutional depth and competition into the system by enabling banks to play a direct role.

According to the finance ministry, the move is designed to remove long-standing regulatory barriers that had restricted bank participation in pension fund sponsorship.

“The proposed framework seeks to address existing regulatory constraints that had limited bank participation till now. By introducing a clearly defined eligibility criteria based on net worth, market capitalisation and prudential soundness in line with RBI norms, it will ensure that only well-capitalised and systemically robust banks are permitted to sponsor pension funds,” the ministry said in a statement on Thursday, adding that detailed eligibility norms will be notified shortly.

The development comes alongside key governance changes at the NPS Trust. PFRDA has appointed three new trustees to its board: former State Bank of India chairman Dinesh Khara, Swati Anil Kulkarni, former executive vice-president of UTI AMC, and Arvind Gupta, co-founder and head of the Digital India Foundation and a member of the national venture capital investment committee under SIDBI’s fund of funds scheme. Khara has been named chairperson of the NPS Trust board.

In another notable change, the regulator has revised the investment management fee (IMF) structure applicable to pension funds. These fees, charged annually on assets under management (AUM), were earlier slab-based and ranged between 0.03 per cent and 0.09 per cent. For the non-government sector, both the slabs and rates have now been recalibrated, with the revised charges ranging from 0.04 per cent to 0.12 per cent.

Explaining the rationale for the revision, the finance ministry said:

“In order to align with evolving realities, aspirations of the public, international benchmarks and the objective of expanding coverage across corporate, retail and gig-economy segments, PFRDA has revised the Investment Management Fee (IMF) structure for Pension Funds to safeguard subscriber interests with effect from April 1, 2026.”

Together, the entry of banks as pension fund sponsors, changes in trustee leadership, and the revised fee framework signal a broader push to strengthen the NPS ecosystem. The reforms are expected to support deeper penetration across salaried professionals, self-employed individuals and the growing gig workforce, while maintaining regulatory oversight and financial stability.