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Reserve Bank of India – Press Releases

Press Releases

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The Reserve Bank of India (RBI) has today announced the following enhancements to the extant framework on card tokenisation services:

  1. the device-based tokenisation framework advised vide circulars of January 2019 and August 2021 has been extended to Card-on-File Tokenisation (CoFT) services as well, and

  2. card issuers have been permitted to offer card tokenisation services as Token Service Providers (TSPs). The tokenisation of card data shall be done with explicit customer consent requiring Additional Factor of Authentication (AFA).

The above enhancements are expected to reinforce the safety and security of card data while continuing the convenience in card transactions.

Citing the convenience and comfort factor for users while undertaking card transactions online, many entities involved in the card payment transaction chain store actual card details [also known as Card-on-File (CoF)]. In fact, some merchants force their customers to store card details. Availability of such details with a large number of merchants substantially increases the risk of card data being stolen. In the recent past, there were incidents where card data stored by some merchants have been compromised / leaked. Any leakage of CoF data can have serious repercussions because many jurisdictions do not require an AFA for card transactions. Stolen card data can also be used to perpetrate frauds within India through social engineering techniques.

Reserve Bank had, therefore, stipulated in March 2020 that authorised payment aggregators and the merchants onboarded by them should not store actual card data. This would minimise vulnerable points in the system. On a request from the industry, the deadline was extended to end-December 2021 (RBI circular CO.DPSS.POLC.No.S33/02-14-008/2020-2021 dated March 31, 2021), as a one-time measure. RBI has been in regular consultation with the industry to facilitate the transition.

It may be noted that introduction of CoFT, while improving customer data security, will offer customers the same degree of convenience as now. Contrary to some concerns expressed in certain sections of the media, there would be no requirement to input card details for every transaction under the tokenisation arrangement. The efforts of Reserve Bank to deepen digital payments in India and make such payments safe and efficient shall continue.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2021-2022/823

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Reserve Bank of India – Tenders

Tenders

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The captioned Meeting was held at 11.00 am on Monday, September 06, 2021 in the VC Room on the third floor of the Bank’s Main Office Building at Bakery Junction, Thiruvananthapuram.

(a) List of Bank’s Officials who attended the meeting

1 Shri V Jayaraj Assistant General Manager
2 Shri Suresh Kumar R Nair Assistant Manager (Tech-Electrical)
3 Smt. T Gowthami Assistant Manager
4 Shri Jomin Joseph Assistant

(b) List of Contractors’ representatives who attended the meeting

  Name of the Representative Name of the Contractor
1 Shri Vishnu K S M/s Cochin Fire Tech India Pvt Ltd
2 Shri Sarjad Salim M/s Cochin Fire Tech India Pvt Ltd
3 Shri Najam M/s A V Fire Fighting Systems

2. Shri V Jayaraj, Assistant General Manager welcomed the participants to the meeting and invited queries, if any, from the prospective bidders regarding the captioned tender. Shri Suresh Kumar R Nair, AM (Tech) explained various aspects of the tender which need to be taken care of in their bids. Queries put forth by the representatives and clarifications given by the Bank are tabulated below:

Queries/Suggestions Clarification/Comments
Whether there is exemption from paying EMD for MSME vendors? Bank is providing EMD exemption for MSMEs for works with estimate up to Rs 10 lakh. Since the estimate for the captioned work is Rs 27 lakh, such exemption is not applicable.
Validity and Value of Performance Bank Guarantee. Para 5 of Section II of tender may be referred to. After virtual date of completion the system shall be under initial warranty period of three years. A performance Bank Guarantee of 10% of the contract value has to be submitted to cover the three years. Thereafter, the system shall be under Comprehensive Annual Maintenance Contract (CAMC) with the contractor for five years. For due fulfilment of obligations towards CAMC, Bank Guarantee of 5% of the contract value valid for five years shall be submitted.
During the Warranty period and Comprehensive Annual Maintenance Contract Period, whether the contractor has to bear costs for repair/replacement of defective components? Para 11 of Section II of tender may be referred to. The contractor has to bear all costs for repair/replacement of defective components of the fire alarm system except for the existing cabling.
Whether rates to be quoted are inclusive of taxes? The rates quoted must be inclusive of all taxes.
Payment release against supply of materials at site. As mentioned in clause 16 of Section II of the tender, 60% of the quoted rates on pro-rata basis shall be paid against delivery of materials after checking at site and submission of test certificates from Original Equipment Manufacturer and submission of Bank Guarantee for 20% of contract value (Quoted amount), valid till scheduled date of completion of the work.
Whether AMC timings mentioned in the tender are relaxable? Considering the operational requirements of the Bank, the Comprehensive AMC timings as per clause 11 of Section II of the tender shall be strictly adhered to.
Is one client certificate sufficient? Client certificates for all qualifying works have to be submitted.

3. Shri V Jayaraj, Assistant General Manager thanked all participants for attending the meeting. He also added that further queries, if any, about the tender can also be clarified from the section and advised the bidders to complete the exercise early and avoid last minute references. The meeting came to an end at 11.45 am.

Regional Director for Kerala and Lakshadweep

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Reserve Bank of India – Press Releases

Press Releases

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The Reserve Bank of India (RBI) has, by an order dated September 07, 2021, imposed a monetary penalty of ₹3.00 lakh (Rupees three lakh only) on The Sutex Co-operative Bank Ltd., Surat (Gujarat) (the bank) for contravention of directions issued by RBI on ‘Loans and advances to directors, relatives and firms /concerns in which they are interested’ and ‘Loans and advances to directors etc. – directors as surety/guarantors – Clarification’. This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47 A (1) (c) read with Section 46 (4) (i) and Section 56 of the Banking Regulation Act, 1949, taking into account the failure of the bank to adhere to the aforesaid directions issued by RBI.

This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

Background

The statutory inspection of the bank conducted by the RBI with reference to the bank’s financial position as on March 31, 2018, the Inspection Report pertaining thereto and examination of all related correspondence revealed, inter alia, non-compliance with aforesaid directions issued by the RBI. In furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed for non-compliance with the aforesaid directions issued by the RBI. After considering the bank’s reply to the notice and oral submissions made during the personal hearing, the RBI came to the conclusion that the aforesaid charge was substantiated and warranted imposition of monetary penalty.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2021-2022/822

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RBI tweaks guidelines for card-tokenisation services

Banking & Finance

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The Reserve Bank of India, on Tuesday, announced enhancements to the current framework on card-tokenisation services.

The device-based tokenisation framework advised through circulars of January 2019 and August 2021 has been extended to Card-on-File Tokenisation (CoFT) services as well.

Further, card issuers have been permitted to offer card tokenisation services as Token Service Providers (TSPs), said the RBI.

“The tokenisation of card data shall be done with explicit customer consent requiring Additional Factor of Authentication (AFA),” it added.

Review undertaken

The enhancements have been done based on a review of the tokenisation framework and to enable cardholders benefit from the security of tokenised card transactions and also the convenience of card on file or customer card credentials, said the RBI.

The facility of tokenisation will be offered by TSPs only for the cards issued by or affiliated to them. Further, the ability to tokenise and de-tokenise card data, will be with the same TSP.

“The above enhancements are expected to reinforce the safety and security of card data while continuing the convenience in card transactions,” the RBI further said.

It also said that the introduction of CoFT, while improving customer data security, will offer customers the same degree of convenience as now.

Contrary to some concerns, there will be no requirement to input card details for every transaction under the tokenisation arrangement, it further said, adding that efforts of the RBI to deepen digital payments in India and make such payments safe and efficient shall continue.

The RBI had, in March 2020, stipulated that authorised payment aggregators and the merchants onboarded by them should not store actual card data. This would minimise vulnerable points in the system. On request from the industry, the deadline was extended to December-end as a one-time measure.

The RBI has been in regular consultation with the industry to facilitate the transition, it said. The central bank had,on August 25, also extended the scope of tokenisation to laptops, desktops, wearables (wrist watches, bands, etc), Internet of Things (IoT) devices from the initial mobile phones and tablets.

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‘Merchant business will always remain our core’

Banking & Finance

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Merchants focussed fintech BharatPe is working on a number of initiatives, including consumer lending and a small finance bank. In an interaction with BusinessLine, Suhail Sameer, CEO, BharatPe, spoke of the company’s plans, including more product launches and roll-out of small finance bank (SFB). Excerpts:

BharatPe has raised a significant amount of funds in the recent past. How do you plan to deploy them?

The debt is only for lending. The plan is to increase our lending book from $150 million to $750 million over the next two years. On the equity side, part of the funds will be used for bank capitalisation. A small part will go for launching consumer products but the bulk of it will be used to expand the merchant network and products to deliver on the merchant side. The aim is to triple our merchant network over the next two years and launch more products such as secured lending with gold loans, auto loans. We also want to expand Payback, which we recently acquired, and enable redemption of points at merchant outlets. Some of the funds will also remain with us.

BharatPe is also launching initiatives like the 12 per cent Club. How do these fit in with your focus on merchant payments?

The merchant business will always remain our core. We realised that of the 15 crore transactions per month by our merchants, there are consumers at the other end of the transaction. We have also acquired Payback, which has a huge base of consumers. Opening up of consumer credit helps us increase our lending business and also helps merchants grow their business. That is the core premise of launching the consumer lending product. The 12 per cent Club is a very successful product on the merchant side.

How do you see your book growing between the merchant and consumer businesses?

For the foreseeable future, merchant lending will be a much bigger book than consumer lending. The next six months is all about getting the consumer product right. We will be happy if we get 1 million users by the end of December on the consumer side.

How do these plans fit with the proposed small finance bank?

We want to launch a digital-first SFB across SME and retail consumers. A lot of the float income or float we have as merchants money with us will go into the bank. We will also enable bank account opening on the merchant and consumer ecosystem, which will help the bank and enable us to give better and bigger loans as we see more of the cash flow. The consumer and merchant app become the front end for all the lending products. The second part of the bank is that we want to build a series of shareable APIs. The first branch of the SFB opens in October, it is almost ready. Sometime later this month will submit the final plan to the Reserve Bank of India.

What other new initiatives is BharatPe planning?

On the consumer side, we will launch three products this year. One is the 12 per cent Club. Second is the Buy Now Pay Later product, which we call PostPe. Our aim is to democratise credit, irrespective of how small or big the transaction is. Also,BNPL works online and on point of sale (PoS) machines. We want to take it to UPI — in the beginning through our closed-loop network on merchants and eventually as guidelines come, to expand it to the rest of the payment ecosystem. PoS has 2.5 million merchants but on UPI there are 25 million merchants. BNPL can be used from the existing few lakh shops to the full retail ecosystem.

We will also expand the scope of Payback to not just a loyalty programme but payments, credit, and investment loyalty programme. It will turn into a full-service financial services platform for consumers.

What do you see as the growth potential for Unified Payments Interface?

There is huge headroom for UPI, won’t be surprised if it keeps growing at five per cent to 10 per cent per month. UPI is just ahead of credit and debit cards in the country today. The next leg of growth for UPI will come from tier 2 and 3 cities. Smartphone penetration will always be higher than credit card penetration.

Between lending, payments and banking, what will be the key focus?

The number 1 priority will be to continue to expand the merchant network. We have 7.5 million merchants. We want to keep expanding the merchant network, We are in 140-150 cities. The priority for the next two years is to get to 20 million-plus merchants and 400 cities. The number two priority is to both scale the existing credit products and launch new credit products for merchants. Till now, we had only unsecured products and now we are launching secured lending products. The third priority is to get the bank up and running and then launch the consumer business.

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Reserve Bank of India – Press Releases

Press Releases

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The Result of the auction of State Development Loans for 11 State Governments held on September 07, 2021.

Table
(Amount in ₹ crore)
  ANDHRA PRADESH 2041 ANDHRA PRADESH 2039 BIHAR 2030 GOA 2031
Notified Amount 1000 1000 2000 200
Tenure 20 18 9 10
Competitive Bids Received        
(i) No. 75 88 110 35
(ii) Amount 3053 4048 10530 1310
Cut-off Yield (%) 7.02 7 6.85 6.88
Competitive Bids Accepted        
(i) No. 4 6 28 13
(ii) Amount 1000 960 1889.994 195.95
Partial Allotment Percentage of Competitive Bids        
(i) Percentage 98 90.1961 80.5875 34.2381
(ii) No. (1 bid) (4 bids) (8 bids) (4 bids)
Non-Competitive Bids Received        
(i) No. 0 3 8 3
(ii) Amount 0 40 110.006 4.05
Non-Competitive Price (₹) 100.13 100.05 100.09 100.18
Non-Competitive Bids Accepted        
(i) No. 0 3 8 3
(ii) Amount 0 40 110.006 4.05
Partial Allotment Percentage of Non-Competitive Bids        
(i) Percentage – – – –
(ii) No. – – – –
Weighted Average Yield (%) 7.0074 6.9948 6.836 6.8545
Total Allotment Amount 1000 1000 2000 200

  GUJARAT 2031 MEGHALAYA 2041 MEGHALAYA 2024 MIZORAM 2034
Notified Amount 1500 100 100 80
Tenure 10 20 3 13
Competitive Bids Received        
(i) No. 194 18 12 23
(ii) Amount 13992 697.25 545 613
Cut-off Yield (%) 6.84 7.02 4.95 7
Competitive Bids Accepted        
(i) No. 34 1 1 5
(ii) Amount 1350 99.995 99.994 79.995
Partial Allotment Percentage of Competitive Bids        
(i) Percentage 35.4286 99.995 99.994 69.995
(ii) No. (17 bids) (1 bid) (1 bid) (3 bids)
Non-Competitive Bids Received        
(i) No. 13 1 1 2
(ii) Amount 180.798 0.005 0.006 0.005
Non-Competitive Price (₹) 100.08 100 100 100.02
Non-Competitive Bids Accepted        
(i) No. 13 1 1 2
(ii) Amount 150 0.005 0.006 0.005
Partial Allotment Percentage of Non-Competitive Bids        
(i) Percentage 82.9655 – – –
(ii) No. (12 bids) – – –
Weighted Average Yield (%) 6.8289 7.02 4.95 6.9981
Total Allotment Amount 1500 100 100 80

  PUNJAB 2031 PUNJAB 2036* RAJASTHAN 2031 TELANGANA 2036
Notified Amount 1000 250 1000 1500
Tenure 10 15 10 15
Competitive Bids Received        
(i) No. 77 34 118 109
(ii) Amount 4765 1406 7410 3911
Cut-off Yield (%) 6.89 – 6.87 7
Competitive Bids Accepted        
(i) No. 20 – 29 10
(ii) Amount 901.937 – 900 1350
Partial Allotment Percentage of Competitive Bids        
(i) Percentage 76.3446 – 23.9316 80.5643
(ii) No. (7 bids) – (12 bids) (7 bids)
Non-Competitive Bids Received        
(i) No. 8 1 15 9
(ii) Amount 98.063 0.046 159.372 159.701
Non-Competitive Price (₹) 100.1 – 100.1 100.01
Non-Competitive Bids Accepted        
(i) No. 8 – 15 9
(ii) Amount 98.063 – 100 150
Partial Allotment Percentage of Non-Competitive Bids        
(i) Percentage – – 62.7463 93.9255
(ii) No. – – (15 bids) (8 bids)
Weighted Average Yield (%) 6.8754 – 6.8561 6.9991
Total Allotment Amount 1000 0 1000 1500

  UTTAR PRADESH 2031 WEST BENGAL 2031 Total
Notified Amount 2500 2500 14730
Tenure 10 10  
Competitive Bids Received      
(i) No. 179 137 1209
(ii) Amount 14640 11680 78600.25
Cut-off Yield (%) 6.89 6.85  
Competitive Bids Accepted      
(i) No. 52 6 209
(ii) Amount 2250 2250 13327.865
Partial Allotment Percentage of Competitive Bids      
(i) Percentage 6.1984 –  
(ii) No. (16 bids) –  
Non-Competitive Bids Received      
(i) No. 17 13 94
(ii) Amount 283.034 280.525 1315.611
Non-Competitive Price (₹) 100.15 100  
Non-Competitive Bids Accepted      
(i) No. 17 13 93
(ii) Amount 250 250 1152.135
Partial Allotment Percentage of Non-Competitive Bids      
(i) Percentage 88.3286 89.1186  
(ii) No. (16 bids) (12 bids)  
Weighted Average Yield (%) 6.8684 6.8499  
Total Allotment Amount 2500 2500 14480
* Punjab has not accepted any amount in the fifteen year security

Ajit Prasad
Director   

Press Release: 2021-2022/821

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Tokenisation – Card Transactions: Permitting Card-on-File Tokenisation (CoFT) Services

Bank Jobs

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RBI/2021-22/96
CO.DPSS.POLC.No.S-516/02-14-003/2021-22

September 07, 2021

All Payment System Providers and Payment System Participants

Madam / Dear Sir,

Tokenisation – Card Transactions: Permitting Card-on-File Tokenisation (CoFT) Services

We invite reference to our circular DPSS.CO.PD No.1463/02.14.003/2018-19 dated January 8, 2019 on “Tokenisation – Card transactions”, permitting authorised card networks to offer card tokenisation services subject to the conditions listed therein. Initially limited to mobile phones and tablets, this facility was subsequently extended to laptops, desktops, wearables (wrist watches, bands, etc.), Internet of Things (IoT) devices, etc., vide our circular CO.DPSS.POLC.No.S-469/02-14-003/2021-22 dated August 25, 2021 on “Tokenisation – Card Transactions : Extending the Scope of Permitted Devices”.

2. Reference is also invited to our circulars DPSS.CO.PD.No.1810/02.14.008/2019-20 dated March 17, 2020 (as updated from time to time) and CO.DPSS.POLC.No.S33/02-14-008/2020-2021 dated March 31, 2021 on “Guidelines on Regulation of Payment Aggregators and Payment Gateways”, advising that neither the authorised Payment Aggregators (PAs) nor the merchants on-boarded by them shall store customer card credentials [also known as Card-on-File (CoF)].

3. On a review of the tokenisation framework and to enable cardholders to benefit from the security of tokenised card transactions as also the convenience of CoF, it has been decided to effect the following enhancements –

  1. Extend the device-based tokenisation1 framework referred to at paragraph 1 above to CoF Tokenisation (CoFT) as well.

  2. Permit card issuers to offer card tokenisation services as Token Service Providers2 (TSPs).

  3. The facility of tokenisation shall be offered by the TSPs only for the cards issued by / affiliated to them.

  4. The ability to tokenise3 and de-tokenise card data shall be with the same TSP.

  5. Tokenisation of card data shall be done with explicit customer consent requiring Additional Factor of Authentication (AFA) validation by card issuer.

  6. Additional requirements relating to CoFT are listed in the Annex.

4. Further, in the interest of cIarity, the following points may be noted –

  1. With effect from January 1, 2022, no entity in the card transaction / payment chain, other than the card issuers and / or card networks, shall store the actual card data. Any such data stored previously shall be purged.

  2. For transaction tracking and / or reconciliation purposes, entities can store limited data – last four digits of actual card number and card issuer’s name – in compliance with the applicable standards.

  3. Complete and ongoing compliance with the above by all entities involved, shall be the responsibility of the card networks.

5. This directive is issued under Section 10 (2) read with Section 18 of Payment and Settlement Systems Act, 2007 (Act 51 of 2007).

Yours faithfully,

(P. Vasudevan)
Chief General Manager

Annex

(CO.DPSS.POLC.No.S-516/02-14-003/2021-22 dated September 07, 2021)

Conditions to be fulfilled for offering CoFT services

1. For the purpose of CoFT, the token shall be unique for a combination of card, token requestor and merchant4.

2. If card payment for a purchase transaction at a merchant is being performed along with the registration for CoFT, then AFA validation may be combined.

3. The merchant shall give an option to the cardholder to de-register the token. Further, a token requestor having direct relationship with the cardholder shall list the merchants in respect of whom the CoFT has been opted through it by the cardholder; and provide an option to de-register any such token.

4. A facility shall also be given by the card issuer to the cardholder to view the list of merchants in respect of whom the CoFT has been opted by her / him, and to de-register any such token. This facility shall be provided through one or more of the following channels – mobile application, internet banking, Interactive Voice Response (IVR) or at branches / offices.

5. Whenever a card is renewed or replaced, the card issuer shall seek explicit consent of the cardholder for linking it with the merchants with whom (s)he had earlier registered the card.

6. The TSP shall put in place a mechanism to ensure that the transaction request has originated from the merchant and the token requestor with whom the token is associated.

7. All other provisions of the RBI circulars dated January 8, 2019 and August 25, 2021 shall be applicable.

8. The TSPs shall monitor and ensure compliance in this regard.

1 The term “device-based tokenisation” wherever used in this circular refers to card tokenisation framework laid down vide RBI circulars dated January 8, 2019 and August 25, 2021.

2 Token Service Provider (TSP) refers to the entity which tokenises the actual card credentials and de-tokenises them whenever required. Earlier only card networks were allowed to act as TSPs.

3 In this circular, the word “token” wherever used includes token reference number, card reference number or any other similar term.

4 The word “merchant” wherever used in this circular refers to the end-merchant. However, in case of an e-commerce marketplace entity, merchant refers to the said e-commerce entity. Further, token requestor and merchant may or may not be the same entity.

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Heightened stress in retail, MSME segments due to Covid could weigh down banks, cautions Ind-Ra

Banking & Finance

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India Ratings (Ind-Ra) has cautioned that heightened stress in retail and micro, small and medium enterprise (MSMEs) could push out the banking sector’s inflexion point.

The credit rating agency also said that upward movement in yield curve could weigh down banks’ profitability.

Ind-Ra observed that safe bastion retail lending has fallen as pandemic drives higher delinquencies.

Indian banks to feel the effect of Covid second wave long after infections fade: S&P Global

In the case of MSME, notwithstanding the support in the form of the emergency credit line guarantee scheme (ECLGS) and restructuring, slippages could reflect from 2HFY22.

The agency noted that the agriculture sector has seen limited impact of Covid. The incremental stress addition from corporate segment has been at low levels.

Continuing systemic support

Ind-Ra, however, has maintained a stable outlook on the overall banking sector for the rest of FY22, supported by the continuing systemic support that has helped manage the system-wide Covid-linked stress.

It observed that banks also continue to strengthen their financials by raising capital and adding to provision buffers, which have already seen a sharp increase in the last three to four years.

‘Significant impact on profitability of Indian banking system’

The agency, in its “Mid-Year Banks Outlook”, has kept its FY22 credit growth estimates unchanged at 8.9 per cent for FY22, supported by a pick-up in economic activity post 1QFY22, higher Government of India (GoI) spending, especially on infrastructure, and a revival in demand for retail loans.

For FY22, the agency estimates the banking sector’s gross non-performing assets (GNPAs) at 8.6 per cent (against 10.1 per cent forecast made in February 2021) and stressed assets at 10.3 per cent (11.7 per cent). It expects provisioning cost for FY22 to increase to 1.9 per cent from its earlier estimate of 1.5 per cent.

PvSBs: market share gains

“Ind-Ra’s Stable outlook on large private sector banks (PvSBs) indicates their continued market share gains, both in assets and liabilities, while competing intensely with public sector banks (PSBs).

“Most have strengthened their capital buffers and proactively managed their portfolio. As growth revives, large PvSBs are likely to benefit from credit migration due to their superior product and service proposition,”said Karan Gupta, Director.

The agency’s Stable outlook on PSBs takes into account continued government support through large capital infusions (₹2.8 lakh crore over FY18-FY21 and further ₹20,000 crore provisioned for FY22).

The government’s support to PSBs has resulted in a significant boost in their capital buffers over the minimum regulatory requirements, significant improvement in provision coverage to 68 per cent in FY21 (FY18: 49 per cent), overall systemic support resulting in lower-than-expected Covid stress and smooth amalgamation of PSBs, Gupta said.

As per Ind-Ra’s analysis of the impact of a reversal in the long-term yield curve on the investment portfolio of banks, it expects an adverse impact on the profitability with a 100 basis points upward shift in the yield curve.

This could impact the pre-provisioning operating profit of PSBs by 8 per cent and that of PvSBs by 3.2 per cent while for the overall banking system, the impact could be 5.8 per cent.

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Andhra appoints former SBI chief Rajnish Kumar as economic advisor, BFSI News, ET BFSI

Banking & Finance

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The Andhra Pradesh government has appointed Rajnish Kumar as its economic advisor. A former SBI chairman, Rajnish Kumar’s tenure in the cabinet rank position is for two years.

The appointment comes amid the growing concerns over the state’s financial situation which has been badly hit by the Covid pandemic, even as the opposition has been critical over the sops and freebies being distributed by the Y.S. Jagan Mohan Reddy-led state government.

Rajnish Kumar’s appointment on Monday is expected to help the state government steer through the financially tough juncture.

Rajnish Kumar who had retired as SBI chairman in October 2006, is an independent non-executive director at the HongKong and Shanghai Banking Corporation.

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Should Senior Citizens Choose National Pension System (NPS) With New Rules?

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Investment

oi-Kuntala Sarkar

|

The National Pension System (NPS) rule has been changed by the Pension Fund Regulatory and Development Authority (PFRDA), stating the maximum age of joining NPS has been increased to 70 years, from the previous 65 years. Any Indian Citizen, resident or non-resident, and Overseas Citizen of India (OCI) can join NPS. Additionally, the maximum age can be 75 at the time of maturity. PFRDA, in an official statement, commented, “In response to the large number of requests received from the existing subscribers to remain invested under NPS beyond 60 years or beyond their superannuation, and the desire from citizens above 65 years to open NPS, it has been decided to increase the entry age of NPS in the interest of Subscribers and benefit them with the opportunity of creating a long term sustainable pension wealth.”

Should Senior Citizens Choose National Pension System (NPS)

Equity exposure

Additionally, PFRDA now said, “The Subscriber, joining NPS beyond the age of 65 years, can exercise the choice of PF and Asset Allocation with the maximum equity exposure of 15% and 50% under Auto and Active Choice respectively. The PF can be changed once per year whereas the asset allocation can be changed twice.” That means the authority has allowed subscribers to allocate up to 50% of the funds in equity who are joining NPS after 65 years, hence, it is a great opportunity for interested senior citizens.

Annuity and tax deduction

The pension scheme is observed by the account holder’s NPS corpus that can be used to buy an annuity – a pension plan. The current annuity rate is 9%-10%, and the pension will be activated till the senior citizen’s death. There is also a variant available where the person’s heirs get back the purchase price, but the annuity rate for this pension variant is lower at 5%-6%. So, as the corpus increases, the pension will increase eventually. One cannot defer the annuity by more than three years, but the non-annuity part (60% of corpus) can be deferred till the age of 75 which means if a subscriber enters at the age of 60, the annuity will have to be bought at the age of 63.

However, many senior citizens stay away from the NPS because of the mandated annuity. But it should be remembered that one needs to use only 40% corpus to buy an annuity, and the remaining 60% corpus will grow till the age of 75. This can be withdrawn free of tax on maturity in a lump sum or 10 installments, which is called phased withdrawal, making it a lucrative option for senior citizens. Along with this opportunity, one can get a tax deduction of up to Rs. 2 lakh each year on contributions to the NPS, and also before maturity no tax is counted on NPS, only on maturity, it will be partially taxed.

Exit from NPS

Additionally, subscribers, beyond the age of 65 years can exit after 3 years, ‘only at least 40% of the corpus should be utilized for the purchase of annuity and withdraw the remaining amount as a lump sum’. In case of premature exit, the subscriber should utilize at least 80% of the corpus for the purchase of the annuity. However, if an unfortunate death of the subscriber happens, the total corpus will be paid to the nominee.

However, senior citizens, who do not have any risk appetite, can invest in the senior citizen savings scheme or PMVVY with an assured rate of return, as it is less risky than NPS which does not offer guaranteed returns. Although regarding cost and taxation, mutual fund options are the closest competitors to NPS, but the latter is tax-free to the subscriber’s heirs on death.



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