Pension finances want tighter investment and valuation norms to deal with defaults
Ever for the reason that IL&FS defaulted on its debt responsibilities final 12 months and flagged off a liquidity disaster throughout the NBFC quarter, mutual fund managers have confronted strident thinking on their corporate bond exposures. Mutual budget’ open-ended nature, every day NAV disclosures and enormous institutional participation has made certain that their doubtful credit score calls cannot get away public scrutiny. SEBI has tweaked its regulatory framework for debt mutual price range to make sure activate disclosure of losses, mark-to-marketplace valuation and a facet-pocketing mechanism to make certain that investor pursuits aren’t compromised whilst credit calls move awry. But there seems to be no such fashionable running procedure in place for pension funds, who’re great players in the corporate bond marketplace and manage retirement savings of retail traders. BusinessLine reports advise that pension fund holdings in IL&FS amount to a vast ₹1, two hundred crores, with both the National Pension System (NPS) and Atal Pension Yojana presenting the paper.
Indian pension fund regulators have historically seen no purpose to ready their regulatory framework to deal with default activities, due to the fact those finances are certain by using the mandate to be pretty conservative with their corporate bond exposures. PFRDA’s investment hints, for instance, specify that the NPS money can most effective be deployed in government securities or corporate bonds rated AA and above by using as a minimum credit score rating corporations. But then, a string of recent defaults by way of AAA or AA-rated entities consisting of IL&FS have proven that excessive funding-grade credit score scores, inside the Indian context, are not any assure that a company borrower will not renege on payments. Rating agencies can effect multi-notch downgrades at whim and once defaults or downgrades transpire, marketplace liquidity for such company bonds absolutely dries up. Given that the brewing NBFC crisis might also unharness greater credit score occasions, it’s miles now imperative for PFRDA to reconsider its valuation and chance control framework for NPS exposures in company bonds. There is even a case for barring such exposures in the Atal Pension Yojana, intended for low-profits earners.
The regulator ought to undergo in mind that the NPS, not like debt mutual budget, gives a totally low control price to AMCs, locks in traders and draws very little public scrutiny. Therefore, there need to be clearer deterrents to NPS managers taking over undue credit risks and delaying mark-downs of downgraded bonds. NPS investors nevertheless can’t go out based on such disclosures, but they can sincerely transfer property or managers to reduce risk. There has additionally been a clamor for Indian pension price range to increase their allocations to decrease-rated bonds to a resource inside the improvement of the bond marketplace. But enjoy to date suggests that counting on 1/3 celebration credit scores to take such calls is fraught with hazard. PFRDA should insist on pension fund managers beefing up their in-house credit score evaluation groups and chance controls, earlier than thinking about changes in its funding norms.
The Centre ought to take immediate steps to restore Bharat Sanchar Nigam Ltd if it desires to obtain the objective of attaining one hundred percent teledensity in rural areas and preserve telecom offerings affordable for the not unusual man. While personal operators have taken over the market with billions of bucks in investments and value-efficient operations, India’s telecom clients need a public zone entity like BSNL as an effective counter to any monopolistic challenge that can rise up due to the ongoing economic pressure inside the quarter. From as many as nine operators, excessive opposition and beneath-cost pricing have decreased the wide variety to just 3 gamers. The larger surviving operators, who’ve up to now controlled to maintain their operations, are underneath pressure to boom price lists. The quite leveraged balance sheets of those operators may also pressure them to sluggish down the rollout of subsequent-technology statistics networks to rural and economically unviable regions. In this context, it’s miles vital to have a robust PSU telecom company with a view to not simplest prevent personal players from growing tariffs as an easy approach to escape financial pressure however also make sure that rural clients are catered to.

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