The government has allowed banks to foray into pension fund management.

According to banking sources, the change has been done under Section 6(o) of the Banking Regulations Act.

The development assumes significance since the Pension Fund Regulatory and Development Authority (PFRDA) has fixed a deadline (Friday, May 25) for filing an expression of interest for undertaking fund management activity.

Earlier, State Bank of India and Punjab National Bank had evinced interest to act as pension fund managers.

The selection of the fund managers is likely to be completed by June and the funds are likely to be invested as per the interim investment guidelines, which may allow investment of 5 per cent in equity and 10 per cent in equity-linked mutual funds.

The remaining part will be invested in government securities, corporate bonds and other money market instruments. Such investment is expected to generate significantly higher returns than 8 per cent per annum that the corpus generates at the moment.

Reportedly, there will be 2-3 fund managers from the public sector as the scheme at the moment is for central and state government employees. Private fund managers are likely to be allowed later.

As per the criteria laid down by the pension fund regulator, a sponsor to be eligible for fund manager must have at least five years of experience and average assets under management of sponsors must not be less than Rs 10,000 crore.

The PFRDA has also prescribed a minimum positive net worth of Rs 10 crore for the new pension funds to be incorporated.

Last month, the regulator appointed the National Securities Depository Ltd (NSDL) as the central record-keeping agency for issuing a unique permanent retirement account number to each subscriber and maintaining a database of all pension accounts.