Regulators of India

7/29/2019 Regulators of India

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Securities and Exchange Board of India

The Securities and Exchange Board of India(frequently abbreviated SEBI) is the regulatorfor

the securities market in India. It was established on 12 April 1992 through the SEBI Act, 1992.

History

It was officially established by The Government of India in the year of 1992 with SEBI Act 1992

being passed by the Indian Parliament. SEBI is having it's Headquarter at the business district

ofBandra - Kurla Complex in Mumbai, and has Northern, Eastern, Southern and Western

Regional Offices in New Delhi, Kolkata, Chennai and Ahmedabad respectively.

Controller of Capital Issues was the regulatory authority before SEBI came into existence; it

derived authority from the Capital Issues (Control) Act, 1947.

Initially SEBI was a non statutory body without any statutory power. However in the year of

1995, the SEBI was given additional statutory power by the Government of India through an

amendment to the Securities and Exchange Board of India Act 1992. In April, 1998 the SEBI

was constituted as the regulator of capital markets in India under a resolution of the Government

of India.

The SEBI is managed by its members, which consists of following: a) The chairman who is

nominated by Union Government of India. b) Two members, i.e. Officers from Union Finance

Ministry. c) One member from The Reserve Bank of India. d) The remaining 5 members arenominated by Union Government of India, out of them at least 3 shall be whole-time members.
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The office of SEBI is situated at SEBI Bhavan, Bandra Kurla Complex, Bandra East, Mumbai-

400051, with its regional offices at Kolkata, Delhi,Chennai & Ahmadabad. It has recently

opened local offices at Jaipur and Bangalore and is planning to open offices at Guwahati,

Bhubaneshwar, Patna, Kochi and Chandigarh in Financial Year 2013 - 2014.

Functions and responsibilities

SEBI has to be responsive to the needs of three groups, which constitute the market:

the issuers of securities the investors the market intermediaries.

SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-

executive. It drafts regulations in its legislative capacity, it conducts investigation and

enforcement action in its executive function and it passes rulings and orders in its judicial

capacity. Though this makes it very powerful, there is an appeal process to create accountability.

There is a Securities Appellate Tribunal which is a three-member tribunal and is presently

headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi. A second appeal lies

directly to the Supreme Court.

Powers

For the discharge of its functions efficiently, SEBI has been invested with the necessary powers

which are:

1. to approve bylaws of stockexchanges.2. to require the stock exchange to amend their bylaws.3. inspect the books of accounts and call for periodical returns from recognized stock

exchanges.
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4. inspect the books of accounts of a financial intermediaries.5. compel certain companies to list their shares in one or more stock exchanges.6. levy fees and other charges on the intermediaries for performing its functions.7. grant license to any person for the purpose of dealing in certain areas.8. delegate powers exercisable by it.9.prosecute and judge directly the violation of certain provisions of the companies Act.10.power to impose monetry penalties.

Major achievements

SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and

successively. SEBI is credited for quick movement towards making the markets electronic and

paperless by introducing T+5 rolling cycle from July 2001 and T+3 in April 2002 and further to

T+2 in April 2003. The rolling cycle of T+2[6]

means, Settlement is done in 2 days afterTrade

date. SEBI has been active in setting up the regulations as required under law.

SEBI has also been instrumental in taking quick and effective steps in light of the globalmeltdown and the Satyam fiasco. In October 2011, it increased the extent and quantity of

disclosures to be made by Indian corporate promoters. In light of the global meltdown, it

liberalised the takeover code to facilitate investments by removing regulatory structures. In one

such move, SEBI has increased the application limit for retail investors to Rs 2 lakh, from Rs 1

lakh at present.

Controversies

Supreme Court of India heard a Public Interest Litigation (PIL) filed by India Rejuvenation

Initiative that had challenged the procedure for key appointments adopted by Govt of India.
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The petition alleged that, "The constitution of the search-cum-selection committee for

recommending the name of chairman and every whole-time members of SEBI for appointment

has been altered, which directly impacted its balance and could compromise the role of the SEBI

as a watchdog." On 21 November 2011, the court allowed petitioners to withdraw the petition

and file a fresh petition pointing out constitutional issues regarding appointments of regulators

and their independence.

The Chief Justice of India refused thefinance ministrysrequest to dismiss the PIL and said that

the court was well aware of what was going on in SEBI. Hearing a similar petition filed by

Bangaluru-based advocate Anil Kumar Agarwal, a two judge Supreme Court bench of Justice SS

Nijjarand Justice HL Gokhale issued a notice to the Govt of India, SEBI chiefUK Sinha and

Omita Paul, Secretary to the President of India.

Further, it came into light that Dr KM Abraham (the then whole time member of SEBI Board)

had written to the Prime Ministerabout malaise in SEBI. He said, "The regulatory institution is

under duress and under severe attack from powerful corporate interests operating concertedly to

undermine SEBI". He specifically said that Finance Minister's office, and especially his advisor

Omita Paul, were trying to influence many cases before SEBI, including those relating to SaharaGroup, Reliance, Bank of Rajasthan and MCX.
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Reserve Bank of India

The Reserve Bank of India (RBI) is India'scentral banking institution, which controls

the monetary policy of the Indian rupee. It was established on 1 April 1935 during theBritish

Raj in accordance with the provisions of the Reserve Bank of India Act, 1934.The share capital

was divided into shares of100 each fully paid which was entirely owned by private

shareholders in the beginning. Following India's independence in 1947, the RBI was nationalised

in the year 1949.

The RBI plays an important part in the development strategy of the Government of India. It is a

member bank of the Asian Clearing Union. The general superintendence and direction of the

RBI is entrusted with the 21-member-strong Central Board of Directors

the Governor(currently Duvvuri Subbarao), four Deputy Governors, two Finance

Ministryrepresentative, ten Government-nominated Directors to represent important elements

from India's economy, and four Directors to represent Local Boards headquartered at Mumbai,

Kolkata, Chennai and New Delhi. Each of these Local Boards consist of five members who

represent regional interests, as well as the interests of co-operative and indigenous banks.

The bank is also active in promoting financial inclusion policy and is a leading member of

the Alliance for Financial Inclusion (AFI). View the bank on AFI's member map or read RBI

financial inclusion-related news.
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History

19351950

The old RBI Building in Mumbai

The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles after

the First World War. It came into picture according to the guidelines laid down byDr. Ambedkar.

RBI was conceptualized as per the guidelines, working style and outlook presented by Dr

Ambedkar in front of the Hilton Young Commission. When this commission came to India underthe name of Royal Commission on Indian Currency & Finance, each and every member of this

commission were holding Dr Ambedkars book named The Problem of the Rupee Its origin

and its solution.

The Bank was set up based on the recommendations of the 1926 Royal Commission on Indian

Currency and Finance, also known as the HiltonYoung Commission. The original choice for the

seal of RBI was The East India Company Double Mohur, with the sketch of the Lion and Palm

Tree. However it was decided to replace the lion with the tiger, the national animal of India. The

Preamble of the RBI describes its basic functions to regulate the issue of bank notes, keep

reserves to secure monetary stability in India, and generally to operate the currency and credit

system in the best interests of the country.
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The Central Office of the RBI was initially established in Calcutta (now Kolkata), but was

permanently moved to Bombay (now Mumbai) in 1937. The RBI also acted as Burma's central

bank, except during the years of the Japanese occupation of Burma (194245), until April 1947,

even though Burma seceded from the Indian Union in 1937. After the Partition of India in 1947,

the Bank served as the central bank forPakistan until June 1948 when the State Bank of

Pakistan commenced operations. Though originally set up as a shareholders bank, the RBI has

been fully owned by the Government of India since its nationalization in 1949.

19501960

In the 1950s, the Indian government, under its first Prime MinisterJawaharlal Nehru, developed

a centrally planned economic policy that focused on the agricultural sector. The administration

nationalized commercial banks and established, based on the Banking Companies Act of 1949

(later called the Banking Regulation Act), a central bank regulation as part of the RBI.

Furthermore, the central bank was ordered to support the economic plan with loans.

19601969

As a result of bank crashes, the RBI was requested to establish and monitor a deposit insurance

system. It should restore the trust in the national bank system and was initialized on 7 December

1961. The Indian government founded funds to promote the economy and used the slogan

Developing Banking. The Government of India restructured the national bank market and

nationalized a lot of institutes. As a result, the RBI had to play the central part of control and

support of this public banking sector.

19691985
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In 1969, the Indira Gandhi-headed government nationalized 14 major commercial banks. Upon

Gandhi's return to power in 1980, a further six banks were nationalized. The regulation of the

economy and especially the financial sector was reinforced by the Government of India in the

1970s and 1980s. The central bank became the central player and increased its policies for a lot

of tasks like interests, reserve ratio and visible deposits. These measures aimed at better

economic development and had a huge effect on the company policy of the institutes. The banks

lent money in selected sectors, like agri-business and small trade companies.

The branch was forced to establish two new offices in the country for every newly established

office in a town. The oil crises in 1973 resulted in increasing inflation, and the RBI restricted

monetary policy to reduce the effects.

19851991

A lot of committees analysed the Indian economy between 1985 and 1991. Their results had an

effect on the RBI. TheBoard for Industrial and Financial Reconstruction, theIndira Gandhi

Institute of Development Research and the Security & Exchange Board of India investigated the

national economy as a whole, and the security and exchange board proposed better methods for

more effective markets and the protection of investor interests. The Indian financial market was a

leading example for so-called "financial repression" (Mackinnon and Shaw). TheDiscount and

Finance House of India began its operations on the monetary market in April 1988; theNational

Housing Bank, founded in July 1988, was forced to invest in the property market and a new

financial law improved the versatility of direct deposit by more security measures and

liberalisation.

19912000

The national economy came down in July 1991 and the Indian rupee was devalued.[16]

The

currency lost 18% relative to the US dollar, and theNarsimahmam Committee advised

restructuring the financial sector by a temporal reduced reserve ratio as well as the statutory
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liquidity ratio. New guidelines were published in 1993 to establish a private banking sector. This

turning point should reinforce the market and was often called neo-liberal. The central bank

deregulated bank interests and some sectors of the financial market like the trust and property

markets. This first phase was a success and the central government forced a diversity

liberalisation to diversify owner structures in 1998.

The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed

nationalized banks in July to interact with the capital market to reinforce their capital base. The

central bank founded a subsidiary companytheBharatiya Reserve Bank Note Mudran

Limitedin February 1995 to produce banknotes.

Since 2000

TheForeign Exchange Management Actfrom 1999 came into force in June 2000. It should

improve the foreign exchange market, international investments in India and transactions. The

RBI promoted the development of the financial market in the last years, allowed online

banking in 2001 and established a new payment system in 20042005 (National Electronic Fund

Transfer). The Security Printing & Minting Corporation of India Ltd., a merger of nine

institutions, was founded in 2006 and produces banknotes and coins.

The national economy's growth rate came down to 5.8% in the last quarter of 20082009 and the

central bank promotes the economic development.
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Structure

RBI runs a monetary museum in Mumbai

Central Board of Directors

The Central Board of Directors is the main committee of the central bank. The Government of

India appoints the directors for a four-year term. The Board consists of a governor, four deputy

governors, fifteen directors to represent the regional boards, one from the Ministry of Finance

and ten other directors from various fields. The Government nominated Arvind Mayaram, as a

director of the Central Board of Directors with effect from August 7, 2012 and vice R Gopalan,

RBI said in a statement on August 8, 2012.

Governors

The current Governor of RBI is Duvvuri Subbarao. The RBI extended the period of the present

governor up to 2013. There are four deputy governors, Deputy Governor K C Chakrabarty, Urjit

Patel, Shri Anand Sinha, and Shri H.R. Khan . Deputy Governor K C Chakrabarty's term has

been extended further by 2 years. Subir Gokarn was replaced by Mr. Urjit Patel in january 2013.
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Supportive bodies

The Reserve Bank of India has ten regional representations: North in New Delhi, South in

Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members,appointed for four years by the central government and servebeside the advice of the Central

Board of Directorsas a forum for regional banks and to deal with delegated tasks from the

central board. The institution has 22 regional offices.

TheBoard of Financial Supervision (BFS), formed in November 1994, serves as a CCBD

committee to control the financial institutions. It has four members, appointed for two years, and

takes measures to strength the role of statutory auditors in the financial sector, external

monitoring and internal controlling systems.

The Tarapore committee was set up by the Reserve Bank of India under the chairmanship of

former RBI deputy governor S. S. Tarapore to "lay the road map" to capital account

convertibility. The five-member committee recommended a three-year time frame for complete

convertibility by 19992000.

On 1 July 2007, in an attempt to enhance the quality of customer service and strengthen the

grievance redressal mechanism, the Reserve Bank of India created a new customer service

department.

Offices and branches

The Reserve Bank of India has 4 zonal offices.[28]It has 19 regional offices at most state capitals

and at a few major cities in India. Few of them are located

in Ahmedabad, Bangalore, Bhopal,Bhubaneswar, Chandigarh, Chennai, Delhi, Guwahati, Hyder

abad, Jaipur, Jammu, Kanpur, Kolkata,Lucknow, Mumbai, Nagpur, Patna,
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and Thiruvananthapuram. Besides it has 09 sub-offices

atAgartala, Dehradun, Gangtok, Kochi, Panaji, Raipur, Ranchi, Shillong, Shimla and Srinagar.

The bank has also two training colleges for its officers, viz. Reserve Bank Staff College at

Chennai and College of Agricultural Banking at Pune. There are also fourZonal TrainingCentres at Mumbai,Chennai, Kolkata and New Delhi.

Main functions

Reserve Bank of India regional office, Delhi entrance with the Yakshini sculpture depicting"Prosperity through agriculture".

[29]

The RBI Regional Office in Delhi.
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The regional offices ofGPO (in white) and RBI (in sandstone) at Dalhousie Square, Kolkata.

Bank of Issue

Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank

notes of all denominations. The distribution of one rupee notes and coins and small coins all over

the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank

has a separate Issue Department which is entrusted with the issue of currency notes. The assets

and liabilities of the Issue Department are kept separate from those of the Banking Department.

Monetary authority

The Reserve Bank of India is the main monetary authority of the country and beside that the

central bank acts as the bank of the national and state governments. It formulates, implements

and monitors the monetary policy as well as it has to ensure an adequate flow of credit to

productive sectors.

Regulator and supervisor of the financial system
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The institution is also the regulator and supervisor of the financial system and prescribes broad

parameters of banking operations within which the country's banking and financial system

functions.Its objectives are to maintain public confidence in the system, protect depositors'

interest and provide cost-effective banking services to the public. The Banking Ombudsman

Scheme has been formulated by the Reserve Bank of India (RBI) for effective addressing of

complaints by bank customers. The RBI controls the monetary supply, monitors economic

indicators like the gross domestic product and has to decide the design of the rupee banknotes as

well as coins.

Managerial of exchange control

The central bank manages to reach the goals of the Foreign Exchange Management Act, 1999.

Objective: to facilitate external trade and payment and promote orderly development and

maintenance of foreign exchange market in India.

Issuer of currency

The bank issues and exchanges or destroys currency notes and coins that are not fit for

circulation. The objectives are giving the public adequate supply of currency of good quality and

to provide loans tocommercial banks to maintain or improve the GDP. The basic objectives of

RBI are to issue bank notes, to maintain the currency and credit system of the country to utilize it

in its best advantage, and to maintain the reserves. RBI maintains the economic structure of the

country so that it can achieve the objective of price stability as well as economic development,

because both objectives are diverse in themselves.
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Banker of Banks

Nagpurbranch holds most of India's gold deposits

RBI also works as a central bank where commercial banks are account holders and can deposit

money.RBI maintains banking accounts of all scheduled banks.[31]

Commercial banks create

credit. It is the duty of the RBI to control the credit through the CRR, bank rate and open market

operations. As banker's bank, the RBI facilitates the clearing of cheques between the commercial

banks and helps inter-bank transfer of funds. It can grant financial accommodation to schedule

banks. It acts as the lender of the last resort by providing emergency advances to the banks. Itsupervises the functioning of the commercial banks and take action against it if need arises.

Ministry of Finance (India)

The Ministry of Finance is an important ministry within the Government of India. It concerns

itself with taxation, financial legislation, financial institutions, capital

markets, centre and statefinances, and the Union Budget.
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The following cadre controlling authority of the Civil Services (including Indian Revenue

Service, Indian Economic Service, Indian Cost Accounts Service and Indian Civil Accounts

Service) are under the administration and supervision of the Finance Ministry.

P. Chidambaram is the current Finance Minister following Prime MinisterManmohan Singh'sbrief stint, which in turn came afterPranab Mukherjeeleft the office to be elected the

13th President of India.

History

R. K. Shanmukham Chetty was the first Finance Minister of independent India. He presented the

first budget of independent India on November 26, 1947.[1]

Organizational Structure

The Union Finance Ministry of India comprises five departments.

Department of Economic Affairs

The Department of Economic Affairs (DEA) is the nodal agency of the Union Government to

formulate and monitor country's economic policies and programmes having a bearing on

domestic and international aspects of economic management. A principal responsibility of this

Department is the preparation of the Union Budget annually (excluding the Railway Budget).

Other main functions include:

Formulation and monitoring of macroeconomic policies, including issues relating to fiscalpolicy and public finance, inflation, public debt management and the functioning of Capital

Market including Stock Exchanges. In this context, it looks at ways and means to raise

internal resources through taxation, market borrowings and mobilization of small savings;

Monitoring and raising of external resources through multilateral and bilateral OfficialDevelopment Assistance, sovereign borrowings abroad, foreign investments and monitoring

foreign exchange resources including balance of payments;
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Production of bank notes and coins of various denominations, postal stationery, postalstamps; and Cadre management, career planning and training of the Indian Economic

Service (IES).

Pranab Mukherjee, FormerFinance Minister of India with US President George W. Bush .

Department of Expenditure

The Department of Expenditure is the nodal Department for overseeing the public financial

management system in the Central Government and matters connected with State finances. The

principal activities of the Department include pre-sanction appraisal of major schemes/projects

(both Plan and non-Plan expenditure), handling the bulk of the Central budgetary resources

transferred to States, implementation of the recommendations of the Finance and Central Pay

Commissions, overseeing the expenditure management in the Central Ministries/Departments

through the interface with the Financial Advisors and the administration of the Financial Rules /

Regulations / Orders through monitoring of Audit comments/observations, preparation of Central

Government Accounts, managing the financial aspects of personnel management in the Central

Government, assisting Central Ministries/Departments in controlling the costs and prices of

public services, assisting organizational re-engineering through review of staffing patterns and

O&M studies and reviewing systems and procedures to optimize outputs and outcomes of public

expenditure. The Department is also coordinating matters concerning the Ministry of Finance

including Parliament-related work of the Ministry. The Department has under its administrative

control the National Institute of Financial Management (NIFM), Faridabad.
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The business allocated to the Department of Expenditure is carried out through its Establishment

Division, Plan Finance- I and II Divisions, Finance Commission Division, Staff Inspection Unit,

Cost Accounts Branch, Controller General of Accounts and the Central Pension Accounting

Department of Revenue

The Department of Revenue functions under the overall direction and control of the Secretary

(Revenue). It exercises control in respect of matters relating to all the Direct and Indirect Union

Taxes through two statutory Boards namely, the Central Board of Direct Taxes (CBDT) and

the Central Board of Excise and Customs (CBEC). Each Board is headed by a Chairman who is

also ex-officio Special Secretary to the Government of India ( Secretary level). Matters relating

to the levy and collection of all Direct taxes are looked after by the CBDT whereas those relating

to levy and collection of Customs and Central Excise duties and other Indirect taxes fall within

the purview of the CBEC. The two Boards were constituted under the Central Board of Revenue

Act, 1963. At present, the CBDT has six Members and the CBEC has five Members. The

Members are also ex-officio Secretaries to the Government of India. Members of CBDT are as

follows:

1 Member (Income Tax)

2 Member (Legislation and Computerisation)

3 Member (Revenue)

4 Member (Personnel & Vigilance)

5 Member (Investigation)

6 Member (Audit & Judicial)
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Department of Financial Services

The Department of Financial Services covers Banks, Insurance and Financial Services provided

by various government agencies and private corporations. It also covers pension reforms and

Industrial Finance and Micro, Small and Medium Enterprise Sector.

Department of Disinvestments

Initially set up as an independent ministry (The Ministry of Disinvestment) in December 1999,

The Department of Disinvestments came into existence in May 2004 when the ministry was

turned into a department of the Ministry of Finance. The department took up all the functions of

the erstwhile ministry which broadly was responsible for systematic policy approach to

disinvestment andprivatisation ofPublic SectorUnits (PSUs).

Ministry of Corporate Affairs (India)

The Ministry of Company Affairs (MCA) is an Indian government ministry. It is charged with

administering the Companies Act 1956 and other acts related to Indian private sector. It is

responsible mainly forregulation of Indian enterprises in Industrial and Services sector. The

current minister of corporate affairs is Sachin Pilot.

The ministry administers the following acts:

The Companies Act 1956 (basic law governing the creation, existence, and dissolution ofcompanies, and the relationships between the shareholders, the company, the public, and the

government. The Competition Act 2002 The Monopolies and Restrictive Trade Practices Act 1969 The Chartered Accountants Act 1949 [As amended by the Chartered Accountants

(Amendment) Act, 2006]
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The Company Secretaries Act 1980 [As amended by The Company Secretaries(Amendment) Act, 2006]

Cost and Works Accountants Act 1959 [As Amended By The Cost And Works Accountants(Amendment) Act, 2006]

Companies (Donation to National) Fund Act 1951 Partnership Act 1932 Societies Registration Act 1860 The Companies Amendment Act, 2006IRDA

IRDA may refer to:

Insurance Regulatory and Development Authority, the administrative agency of Governmentof India for insurance sector supervision and development

Infrared Data Association, in information and communications technology, a standard forcommunication between devices (such as computers, PDAs and mobile phones) over short

distances using infrared signals

Intermittent rhythmic delta activity, a type of abnormal brain wave Iskandar Regional Development Authority, a key entity to the successful implementation of

Iskandar Development Region, Malaysia

Irda (Dragonlance), a fictional species in theDragonlance series International Reborn Doll Artists, a group promoting the making ofreborn dolls
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National Pension Scheme

PFRDA Logo with original colours

The National Pension System (NPS) is a defined contribution based pension system launched by

Government of India with effect from 1 January 2004. Like most other developing countries,

India does not have a universal social security system to protect the elderly against economic

deprivation. As a first step towards instituting pension reforms, Government ofIndia moved

from a defined benefit pension to a defined contribution based pension system. Apart from

offering wide gamut ofinvestment options to employees, this scheme would help government of

India to reduce its pension liabilities. Unlike existing pension fund of Government of India that

offered assured benefits, NPS has defined contribution and individuals can decide where to

invest their money. The scheme is structured into two tiers:

Tier-I account: This NPS account does not allow premature withdrawal and is available from1 May 2009

Tier-II account: The tier-II NPS account permits withdrawal.
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Since 1 April 2008, the pension contributions of Central Government employees covered by the

National Pension System (NPS) are being invested by professional Pension Fund Managers in

line with investment guidelines of Government applicable to non-Government Provident Funds.

A majority of State Governments have also shifted to the defined contribution based National

Pension System from varying dates. 27 State/UT Governments have notified the NPS for their

new employees. Of these, 6 states have already signed agreements with the intermediaries of the

NPS architecture appointed by Pension Fund Regulatory and Development Authority (PFRDA)

for carrying forward the implementation of the National Pension System. The other States are in

the process of finalization of documentation.

Regulator

Pension Fund Regulatory and Development Authority (PFRDA) is the prudential regulator

for the NPS. PFRDA was established by the Government of India on 23 August 2003 to promote

old age income security by establishing, developing and regulating pension funds. PFRDA has

set up a Trust under the Indian Trusts Act, 1882 to oversee the functions of the PFMs. The NPS

Trust is composed of members representing diverse fields and brings wide range of talent to the

regulatory framework.

Coverage and eligibility

NPS was made available to all citizens ofIndia on voluntary basis and is mandatory for

employees of central government (except armed forces) appointed on or after 1 January 2004.

All Indian citizens between the age of 18 and 55 can join the NPS.

Tier-I is mandatory for all Govt. servants joining Govt. service on or after 1.1.2004. In Tier I,

Govt. servants will have to make a contribution of 10% of his Basic Pay, DP and DA which will

be deducted from his salarybill every month. The Govt. will make an equal matching

contribution. Since 1 April 2008, the pension contributions of Central Government employees

covered by the NPS are being invested by professional Pension Fund Managers in line
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with investment guidelines of Government. However, there will be no contribution from the

Government in respect of individuals who are not Government employees. The contributions and

returns thereon would be deposited in a non-with drawable pension account.

In addition to the above pension account, each individual can have a voluntary tier-II with

drawable account at his option. Government will make no contribution into this account. These

assets would be managed in the same manner as the pension. The accumulations in this account

can be withdrawn anytime without assigning any reason. Its estimated that 8 crore citizens of

India are eligible to join the NPS.

Operational structure

NPS is designed to leverage network ofbankbranches and post offices to collect contributions

and ensure that there is seamless transfer of accumulations in case of change of employment

and/or location of the subscriber. It offers a basket of investment choices and Fund

managers. Dhirendra Swarup is one of the founders.

There will be one or more CRA, several PFMs to choose from which will offer different

categories of schemes. The participating entities (PFMs, CRA etc.) would give out easily

understood information about past performance & regularNAVs, so that the individual would

able to make informed choices about which scheme to choose. PFMs would share this common

CRA infrastructure. The PFMs would invest the savings people put into their PRAs, investing

them in three asset classes, equity (E),government securities (G) and debt instruments that

entail credit risk(C), including corporate bondsand fixed deposits.

Contribution guidelines

The following contribution guidelines have been set by the PFRDA:
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Minimum amount per contribution: Rs. 500 per month Minimum number of contributions: 1 in a year Minimum annual contribution: Rs 6,000 in each subscriber account.

If the subscriber is unable to contribute the minimum annual contribution, a default penalty ofRs.100 per year of default would be levied and the account would become dormant. In order to

re-activate the account, subscriber will have to pay the minimum contributions, along with

penalty due. A dormant account will be closed when the account value falls to zero.

Investment options

Under the investment guidelines finalized for the NPS, pension fund managers will manage three

separate schemes, each investing in a different asset class. The three asset classes are equity,

government securities and credit risk-bearing fixed income instruments. The subscriber will have

the option to actively decide as to how the NPS pension wealth is to be invested in three asset

classes:

1. E Class: Investment would primarily be in Equity market instruments. It would invest inIndex funds that replicate the portfolio of either BSE Sensitive index or NSE Nifty 50

index.

2. G Class: Investment would be in Government securities like GOI bonds and State Govt.bonds

3. C Class: Investment would be in fixed income securities other than GovernmentSecurities

* Liquid Funds of AMCs regulated by SEBI with filters suggested by the Expert Group

* Fixed Deposits of scheduled commercial banks with filters

* Debt securities with maturity of not less than three years tenure issued by bodies

Corporate including scheduled commercial banks and public financial institutions

Credit Rated Public Financial Institutions/PSU Bonds

Credit Rated Municipal Bonds/Infrastructure Bonds
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In case the subscriber does not exercise any choice as regards asset allocation, the

contribution will be invested in accordance with the Auto choice option. In this option the

investment will be determined by a predefined portfolio. At the lowest age of entry (18

years) the auto choice will entail investment of 50% of pension wealth in E Class, 30% in

C Class and 20% in G Class. These ratios of investment will remain fixed for all

contributions until the participant reaches the age of 36. From age 36 onwards, the weight in

E and C asset class will decrease annually and the weight in G class will increase

annually till it reaches 10% in E, 10% in C and 80% in G class at age 55. The

following table will illustrates this auto choice more clearly-

Class Till the of age 35 years At age 55 Years

E 50% 10%

C 30% 10%

G 20% 80%

Investment charges

NPS levies extremely low Investment management charge of 0.00010% on net AUM (Asset

Under Management). This is extremely low as compared to charges levied by mutual

funds or other investment products. Initial charge of opening the account would be Rs. 470.

From second year onwards the minimum charge would be Rs. 350 a year. As per the offer

document of NPS, annual and transaction charges would be reduced once the number of

accounts in CRA reaches 10 lakh.
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Withdrawal norms

If subscriber exits before 60 years of age, he/she has to invest 80% of accumulated saving to

purchase a life annuity from IRDA regulate life insurer. The remaining 20% may be

withdrawn as lump sum. On exit after age 60 years from the pension system, the subscriber

would be required to invest at least 40% of pension wealth to purchase an annuity. In case of

Government employees, the annuity should provide for pension for the lifetime of the

employee and his dependent parents and his spouse at the time of retirement. If subscriber

does not exit the system at or before 70 years, account would be closed with the benefits

transferred to subscriber in lump sum. If a subscriber dies, the nominee has the option to

receive the entire pension wealth as a lump sum.

Tax treatment

The offer document of NPS does not specify the tax benefits in elaborate manner. It specifies

Tax benefits would be applicable as per Income Tax Act, 1961 as amended from time to

time. As per current provisions, withdrawals under the NPS attract tax under the EET

(exempt-exempt-taxable) system, which means that while contributions and returns to the

NPS are exempt up to a limit, withdrawals would be taxed as normal income (EET).

To make the National Pension System more attractive Government has announced two major

Income tax concessions for contributions made in National Pension System in the budget

2011.

While the NPS subscribers are directly benefited from one of these Income tax concessions,

the second one is beneficial to the employers who contribute for NPS each month equivalent

to employees contribution in Tier I.
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Income tax concession to Employees under NPS:

So far, the contribution made by a National Pension System subscriber in Tier I scheme is

deductible from the total income under Section 80CCD of the Income Tax Act. Like wise,

the contribution made by the employer for the employee in Tier I of National Pension

System is also deductible under Section 80CCD. However, the aggregate deduction under

Section 80C, 80CCC and 80CCD is fixed at Rs.1 lakh.

So, if the NPS subscriber is already having other eligible deductions such as LIC premium,

PPF, bank or NSC deposits, ELSS etc., under Section 80C, 80CCC and Section 80CCD.,

deduction allowed under Section 80CCD in respect of National Pension System may not be

of much useful as the overall limit of savings eligible for deduction is pegged at Rs. 1 lakh.

Further, contribution made by the National Pension System should also be included in the

Total income of NPS subscriber as far as calculation of income tax is concerned, while full

deduction of the same from income under Section 80CCD may not be possible as other

savings made by the subscriber covers the overall limit of Rs.1 lakh under Section 80CCD.

Hence, for a NPS subscriber contribution for NPS by the Government is taxable in most of

the cases.

For example, if an employee receives a salary of Rs.40,000 (pay+da), 10% of the same

(Rs.4000) is paid by him as contribution towards NPS. The Government will also be paying

Rs.4000 in this case in NPS fund of the said employee. Until now, an amount of Rs.96,000

(Rs.48,000+Rs.48000) could be deductible from the total income as far as this employee is

concerned under Section 80CCD.


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However, if the said employee has been paying LIC premium of Rs.20,000 per year, he will

be allowed to deduct only Rs.4000 in respect of the same under Section 80CC as total ceiling

of Rs.1,00,000 under Section 80CCE will apply in this case. So, an eligible deduction of

Rs.16,000 could not be availed under Section 80CCD. In other words, employer contribution

to NPS to an extent of Rs.16,000, which is already included in the income is taxable in this

case.

However, the Finance Act, 2011 amended section 80CCE so as to provide that the

contribution made by the Central Government or any other employer to the pension scheme

under section 80CCD shall be excluded from the limit of one lakh rupees provided under

section 80CCE. This proposal is effective from the assessment year 2012-13 (financial year

2011-12) and would totally exempt employer's contribution in NPS from levying income tax

on the employee.

Income tax concession to Employers under NPS:

The Finance Act, 2011 amended section 36 so as to provide that any sum paid by the

assessee as an employer by way of contribution towards a pension National Pension

System(NPS) to the extent it does not exceed ten per cent of the salary of the employee, shall

be allowed as deduction in computing the income under the head Profits and gains of

business or profession.

This amendment will be effective from 1 April 2012 and will be applicable to the assessment

year 2012-13 (for the income earned in the financial year 2011-12) and subsequent years.

Past investment returns


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The NPS architecture has been managing money since April 2008. Rs.2100 crore is invested

as corpus of Central Government employees. In 2008-09, as per unaudited results of the

Pension Funds, the average weighted return on the corpus have been over 14.5% with the

individual returns of three Pension Funds varying from 12% to 16% on the NPS corpus

during the year 2008-09, weighted average return being over 14.5 per cent. According to the

latest data released by the government in Parliament on Aug 23, 2011, return on investment

is as low as 1.8% in case of those private sector employees, who opted for investments in

government securities, the safest of the categories. The performance of the three pension

fund managers for the central government employees indicate that the returns on subscribers'

contributions under NPS ranged between 8% and 16% during 2008-09 and 2010-11.

Swavalamban Yojana As mentioned in the operating guidelines issued by MoF,

"Government will contribute Rs. 1000 per year to each NPS account opened in the year

2010-11 and for the next three years, that is, 2011-12, 2012-13 and 2013-14. As a special

case and in recognition of their faith in the NPS, all NPS accounts opened in 2009-10 will be

entitled to the benefit of Government contribution under this scheme as if they were opened

as new accounts in 2010-11 subject to the condition that they fulfill all the eligibility criteria

prescribed under these guidelines."

Accordingly, the basic eligibility criteria for joining the Swavalamban Yojana for a

subscriber is given below: Permanent Retirement Account should be opened in the year

2009-10 or 2010-11 and Minimum contribution should be Rs. 1,000 per annum (Financial

year) in Tier I account and maximum contribution should be Rs. 12,000 per annum

(Financial year) in both Tier I as well as Tier II account together.

Documents

Regulators of India