Tag: pension fund

In an ultra-aggressive bid, Deutsche Bank is willing to accept a fee of just ₹100 a year for being the custodian of India’s pension fund which has total assets under custody of more than ₹6 lakh crore across various schemes.

The existing custodian, Stock Holding Corporation of India, a large depository participant owned by public financial institutions, charges close to ₹19 crore for the job.

Other institutions in the race for the custody mandate of the National Pension Scheme (NPS) include Citi, SBI-SG Global Securities Services (a joint venture between SBI and Societe Generale Securities Services), and ICICI. The fees quoted by these organisations are more than ₹1crore.

NPS, launched by the central government and involving multiple asset managers handling one of the largest fund pools in the country, is regulated by the Pension Fund Regulatory and Development Authority.

“It’s a prestigious mandate. So, Deutsche has probably taken a call to make money from a transitory float it could enjoy as a custodian,” said an official of a bank that has not put in a bid.

A Deutsche India spokesman said the bank would not comment on a client mandate.

“Beyond fees, there could be other ways to earn. Discount brokers charge little or nothing from stock traders. But, with so much liquidity available, earnings from float have come down with the fall in overnight rates. It may further shrink with T+1 (settlement in stock exchanges),” said an official of a financial intermediary.

A custodian has the opportunity to enjoy a day’s float by parking some money with the Reserve Bank of India under the reverse repo facility or in the inter-bank market.

Funds into NPS move from the employer (when salaries are paid) to the collection banks following which the money is transferred to custodians when an asset manager decides to invest in bonds and equities. Since investments happen within a day or two, custodians have a limited float.

The Deutsche bid has to pass the test laid down by the finance ministry.

According to the government’s ‘Manual for Procurement of Consultancy & Other Services’, “An abnormally Low bid is one in which the bid price, in combination with other elements of the bid, appears so low that it raises material concerns as to the capability of the bidder to perform the contract at the offered price. Procuring entity may in such cases seek written clarifications from the bidder, including detailed price analyses of its bid price in relation to scope, schedule, allocation of risks and responsibilities and any other requirements of the bid document. If, after evaluating the price analyses, (the) procuring entity determines that the bidder has substantially failed to demonstrate its capability to deliver the contract at the offered price, the procuring entity may reject the Bid/Proposal.”

Recently, a similar bid from another MNC bank for the custody mandate of postal life insurance was rejected on this ground.

While custody is a stable and sought after business, a few institutions have recently changed tack in choosing custodians. Life Insurance Corporation of India (LIC) recently shut the doors to foreign banks in selecting the custodian for its ₹10 lakh crore holding of stocks and corporate bonds. MNC banks lost out as LIC’s condition was that if the bidder was a foreign company or MNC, any of its securities had to be listed in India.