Dept.

of Financial Services Ministry of Finance, Government of India

About Department of financial services : he mandate of the Department is to look after issues relating to Public Sector Banks, Financial Institutions, Public Sector Insurance Companies and Pension Reforms. Financial sector reforms initiated by the Reserve Bank of India (RBI) and Government have been directed towards enhancing efficiency and productivity of banks, providing additional options for augmentation of capital of banks for smooth transition to Basel II norms, ensuring smooth and risk free functioning of payment and settlement system, encouraging use of advance technology in banking operations with minimum risks and according priority to financial inclusion. The operational rigidities in credit delivery system were addressed to ensure allocational efficiency and achievement of social objectives. The focus on ensuring adequate flow of credit to agriculture, small, medium and micro industries, minorities and weaker sections continued with greater focus on financial inclusion. A number of policy initiatives on strengthening the cooperative credit structure and ensuring credit to agriculture and rural infrastructure and housing sector were initiated/ continued in 2009-10 also. Major Functions of Department of Financial Services 1. Department of Financial Services is administering Government policies having a bearing on the working of banks and the term lending Financial Institutions. The Division is headed by Secretary , (Financial Services) and operates through three sub-divisions (I) Industrial Finance (II) Banking Operations and (III) Banking and Insurance. Each sub-division is headed by a Joint Secretary. 2. Industrial Finance sub-division deals with the legislative and administrative work relating to All India Financial Institutions, appointment of Chief Executives of Financial Institutions, appointment of Chairman and Members of Board for Industrial and Financial Reconstruction (BIFR), Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and matters relating to industrial sickness and miscellaneous issues of coordination between industry, banks and financial institutions. It also deals with establishment of Debts Recovery Tribunals(DRTs) and Debt Recovery Appellate Tribunals (DRATs). 3. The Banking Operations sub division deals with legislative proposals relating to banks, nonbanking financial companies, chit fund companies and other related matters and processing of appointments of chief Executives and Government nominee Directors/non official directors on the boards of public sector banks. In addition, policy matters relating to private banks, foreign banks and non banking financing companies, improvement of customer's service in banks and redressal of customer's grievances are also dealt in this sub division. This sub division also deals with Vigilance matters, appointment of Chief Vigilance Officers(CVOs) in the public sector banks and other related matters.

4. The Banking and Insurance sub division deals with all policy matters relating to bank's credit linked self employment programmes implemented by Ministries/Departments of Central Government, operational and administrative matters of National Housing Bank (NHB) and coordination with the RBI on the above matters. This sub-division also deals with credit policy matters relating to village & cottage industries, handloom handicrafts, transport, education, small business, retail trade etc. Matters relating to selective credit control, credit guarantee corporation and administration of the Regional Rural Banks Act, 1976, negotiation and implementation of wage settlement in banking industry, man-power housing, processing of proposals for appointment of workmen employee directors, implementation of reservation policy for Scheduled Caste/Scheduled Tribes and the other specified categories is also being dealt by this sub division. NEW INITIATIVES 1. Goverment has appointed a High Level Committee headed by Finance Secretaryi. To assess the capital requirement of PSBs and the options to meet the same and ii. Steps to improve efficency od banks to reduce fresh infusion of capital. The Committee has submitted its report to the Goverment On 11.02.2012. Goverment is entering into Memorandum of understandings (MoUs) with PSBs whereby capital infusion will be linked to acheiving the key targets by PSBs on various productivity parameters in their respective MOUs. 2. Key Advisory Groups Three separate Key Advisory Groups have been constituted during the month of September, 2011 under the Chairmanship of Shri Alok Nigam, Joint Secretary (Banking Operations) to examine the issues in NBFCs / ARCs / Chit Fund / Nidhi Companies. The Terms of Reference of the Key Advisory Group on NBFCs are as under:i. Review of existing legal / regulatory / institutional framework for NBFCs / ARCs / Chit Fund / Nidhi Companies and its efficacy; ii. Action plan including policy initiatives for orderly growth of the Sector; iii. To recommend the legal / institutional / regulatory initiatives related measures required for orderly growth of the Sector. 3 Key Advisory Group on Payment System in India A Key Advisory has been constituted on 16th November, 2011 under the Chairmanship of Secretary (Financial Services) to examine the issues relating to Payment Systems in India. The terms of reference of the Key Advisory Group are as under:I. Review of existing legal / regulatory / institutional framework for payment system and its efficacy; II. Action plan including policy initiatives for orderly growth of the Sector;

III. To recommend the legal / institutional / regulatory initiatives related measures required for orderly growth of the Sector; IV. To study the reforms of Electronic Payment Systems, Clearing Houses, Currency Chests, ATMs, Credit and Debit Cards in India. 4. e-Governance in Government of India The technological developments have modernized the payment systems in India, such as, internet banking, online payment of taxes, use of credit / debit cards, Electronic Clearing Service (ECS), National Electronic Fund Transfer (NEFT), Real Time Gross Settlement System (RTGS), etc. This has brought efficiency, cost-effectiveness, transparency and enhanced credibility of the payment systems. To realize the potential of technology, improve accountability and credibility and to make available various public services and also the banking services to the people at large at affordable cost, Government has targeted to roll-out the e-payment platform the Government Electronic Payment Gateway (GePG) in all Pay and Account Offices of the Civil Ministries of the Government of India . This will also enable electronic transfer of benefits to the beneficiaries of various Government Schemes on real time basis. 5. e-Governance in Financial Sector Further, to improve the quality and efficiency of Financial Services for improved service delivery, Government has taken various pro-active measures and issued instructions to the banks and Financial institutions, as under i. All Institutions, corporate or otherwise which take any loans or in whose equity any financial institutions has invested, shall ensure that They make payments to staff, vendors and clients electronically except for office petty cash requirements; They receive all payment electronically except when cheques are drawn on banks which are not on National Electronic Fund Transfer (NEFT), Real Time Gross Settlement System (RTGS)

ii. Public Sector Banks (PSBs), Financial Institutions, viz., NABARD, SIDBI, EXIM Bank and Public Sector Insurance Companies (PSICs) would take up the e-Governance initiatives in a proactive manner. All PSBs, FIs and PSICs would, w.e.f. 1St September, 2011, except for petty cash, deal with disbursal / payments only through direct credit to accounts; Elimination of post-dated cheques and gradual phase-out of cheques. iii. All banks of all sizes need to be on Core Banking Solution (CBS) with immediate effect. Further, all banks which are on CBS should be automatic members of the clearing house to get their cheque cleared. iii. All PSBs and the Regional Rural Banks (RRBs) have been brought under the NEFT platform

so as to enable them offer e-Payment facilities to their customers. iv. All POS and ATMs to be inter-operable. v. RBI has issued guidelines to the NBFCs for increased use of electronic payment systems. Government is committed to ensure that the benefits of technology based payment systems reach to the "Aam-admi" at the most affordable cost in most efficient manner. 6. Currency Chests and Clearing Houses Government is pursuing to ensure that all the districts of the Country have atleast one Currency Chests and Clearing House each in all the districts, and the Currency and Clearing requirements of the economy are adequately fulfilled. The Reserve Bank of India informed the Government that, in October, 2011, a total of 20 districts in the Country did not have Currency Chests and 63 districts did not have a Clearing House. Government has advised the Reserve Bank of India and the concerned SLBC convener Banks to initiate urgent action to ensure that all the districts of the Country have at least one Currency Chest and Clearing House there. Government will continue to monitor the requirement of Currency and Clearing facilities of each part of the Country, and these facilities would be made available at all districts / centres requiring such services, by March,

CITIZEN'S CHARTER Our Vision: To foster a well regulated and orderly growth of banking and insurance sector to serve all sections of society Our Mission: The Department of Financial Services was created on 28th June, 2007 by merging the erstwhile Banking and Insurance Divisions. Broadly, the functions of the Department are split into those relating to banking, insurance and pension reforms. We fulfil the vision through:

Policy support to the Public Sector Banks (PSBs), Public Sector Insurance Companies and Development Financial Institutions (DFIs) i.e. NABARD, SIDBI, IIFCL, EXIM Bank, IDFC, NHB and IWRFC, IIBI through policy guidelines, legislative and other administrative changes. Monitoring the performance of the PSBs, Public Sector Insurance Companies and DFIs Policy formulation in respect of Non-Banking Financial Companies, private banks and foreign banks

Support to regulatory authorities i.e. RBI, IRDA, PFRDA, NHB and NABARD

Our Clients:

Banks Public Sector insurance Companies Development Financial Institutions Non-banking Financial Companies Regional Rural Banks

Our Services:

Appointment of Chief Executives and Government nominee Directors / non-Directors on the Boards of Public Sector banks (PSBs), Public Sector Insurance companies and DFIs; Chief Vigilance Officers (CVOs) in PSBs and Insurance Companies; Chairpersons and Members of BIFR and AAIFR, and Workmen employee directors in PSBs, Administration of the Regional Rural Banks Act, 1976 and all Acts on Banks, DFls and Insurance Companies. Framing rules and regulations in respect of service conditions of employees of Public Sector insurance companies and Chairperson and Members of IRDA Wage settlement in banking and insurance industry. Framing rules under IRDA Act 1999 and appointment of Chairperson and Members of IRDA Formulation of Legislative proposals concerning the Interim PFDRA. Coordination between industry, banks and financial institutions

Grievances Redressal Mechanism:

In order to further strengthen the grievance redressal mechanism in Public Sector Banks and Insurance Companies, this Department has been using extensively the CPGRAMS portal (Centralised Public Grievances Redressal and Monitoring System) developed by Department of Administrative Reforms and Public Grievances. The system facilitates the citizens to lodge their grievances on-line directly on the website.

The grievances received from individuals, DARPG, DOPT are transmitted online to the Banks, Public Sector Insurance Companies concerned, IRDA, Banking Ombudsman offices etc. and responses to the grievances can also be submitted by agencies online. The system helps the complainant to monitor the status of the complaints online and also generate action taken reports. In LIC, Customers Relations Executives in Branch offices and Customers Relations Managers in Divisional offices deal with complaints from policy holders, agents and other officers/agencies. The aggrieved can meet the Grievances Redressal Officers for settlement of their grievances without prior appointment.

Right to Information Act 2005:

In Department of Financial Services, CPIOs and Appellate Authorities have been nominated to deal with applications received under RTI Act. Information is provided to the applicants within the prescribed time limit. The applicants, who are not satisfied with the information provided, or not getting the information in time, can prefer appeal before the Appellate Authorities within the prescribed time schedule. The names and other requisite details regarding the CPIOs and Appellate Authorities are posted on the website of the Department and updated as and when changes are made.

Abbreviations:

RBI Reserve Bank of India NABARD National Bank for Agriculture and Rural Development SIDBI Small Industries Development Bank of India IIFCL India Infrastructure Finance Company Limited EXIM Bank Export and Import Bank of India IDFC Industrial Development Finance Corporation NHB National Housing Bank IWRFC Irrigation and Water Resources Finance Corporation IRDA Insurance Regulatory and Development Authority PFRDA Pension Fund Regulatory and Development Authority

BIFR Bureau of Industrial and Finance Reconstruction AAIFR Appellate Authority for Industrial and Financial Reconstruction PSBs Public Sector Banks DFIs Development Financial Institutions LIC Life Insurance Corporation of India DARPG Department of Administrative Reforms and Public Grievances DOPT Department of Personnel and Training CPIOs Central Public Information Officers

DIVISION OF FINANCIAL SERVICES

banking

insurance
pension

The Department comprises of Banking, Insurance and Pension Reforms Divisions.

1. INSURANCE DIVISION

The functions of the Insurance Division include formulation of policy for the orderly growth of the insurance sector, monitoring of the performance of the nationalized insurance companies, framing of rules and regulations in respect of service conditions of employees of nationalized insurance companies; framing of rules in respect of terms and conditions of service of the Chairpersons and Members of Insurance Regulatory and Development Authority (IRDA), appointment of Chief Executives and Directors on the Boards of nationalised insurance companies, framing of rules under IRDA Act, 1999 and appointment of Chairperson and Members of the IRDA. Insurance Division Work allocation of Insurance Division List of Insurance Companies Life Insurance Companies General Insurance Companies Public Sector Insurance Companies Insurance Regulatory & Development Authority (IRDA) Institute of Actuaries of India (IAI) Major initiatives Government Sponsored Socially Oriented Insurance Schemes. Insurance Ombudsmen

Circulars Senior Level Appointments of Insurance Companies

What the Insurance Division Does

Insurance Division is administratively concerned with the activities of life and non-life segments of the nationalized insurance industry and Insurance Regulatory and Development Authority (IRDA). The Functions of Division are:

Policy formulation and administration of the following Acts of Parliament:

Insurance Act, 1938 Life Insurance Corporation Act, 1956 General Insurance Business (Nationalization) Act, 1972 IRDA Act, 1999 Actuaries Act, 2006

Constant review and monitoring of the performance of the National Insurance Companies. Framing of rules and regulations in respect of service conditions of employees of Public sector Insurance Companies. Appointment of Chief Executives and Directors on the Board of Public sector Insurance Companies and on the IRDA. Implementation of government sponsored insurance scheme like Universal Health insurance scheme, Aam Aadmi Bima Yojana, Varisht Pension Yojana Etc.

Insurance Regulatory & Development Authority(IRDA) The insurance sector was opened up to private participation with the enactment of the Insurance Regulatory and Development Authority Act, 1999. The Insurance Regulatory and Development Authority (IRDA ) at present consists of the Chairman, 4 full-time members and 4 part-time members. The Authority is functioning from its Head Office at Hyderabad, Andhra Pradesh. The core functions of the Authority include

Licensing of insurers and insurance intermediaries; Financial and regulatory supervision

Control and regulate premium rates; and Protection of the interests of the policyholders.

Indian insurance sector: Since opening up, the number of participants in the industry has gone up from six insurers in the year 2000 to 52 insurers operating in the life, non-life and reinsurance segments. Indian Insurance Sector Total Number of insurers Private Sector Life Insurers General Insurers Reinsurance Co. GIC Total 23 21 44

Pu

1 6 01 8

Since opening up, the number of participants in the industry has gone up from six insurers (including Life Insurance Corporation of India, four public sector general insurers and General Insurance Corporation of India as the National Reinsurer) in the year 2000 to 52 insurers operating in the life, non-life and reinsurance segments (including specialized insurers viz. Export Credit Guarantee Corporation and Agriculture Insurance Company of India Ltd. ). Three of the general insurance companies, viz. Star Health and Alliance Insurance Company; Apollo Munich Health Insurance Company; and Max BUPA Health Insurance Co. Ltd. function as standalone health insurance companies. Of the twenty three life insurance companies which have set up operations in the life segment post opening up of the sector, twenty one are in joint venture with foreign partners. Of the eighteen who have commenced operations in the non-life segment, sixteen had been set up in collaboration with foreign partners. INSTITUTE OF ACTUARIES OF INDIA (IAI) : Website : www.actuariesindia.org

With the enactment of the Actuaries Act, 2006, the then Actuarial Society of India was converted into the Institute of Actuaries of India. IAI is a professional body having a statutory character on the same lines as those for the professions of Chartered Accountants, Cost and Works Accountants and Company Secretaries, established through enactment of the Chartered Accountants Act, 1949; Cost and Works Accountants Act, 1959; and the Company Secretaries Act, 1980, respectively. IAI is the sole Professional body of Actuaries in India.

Major Initiatives (i) Amendment to Insurance Legislation: The Insurance Laws (Amendment) Bill, 2008 introduced in the Parliament proposes to amend the Insurance Act, 1938, the Insurance Regulatory and Development Authority Act, 1999 and the General Insurance Business (Nationalization) Act, 1972. The amendments to the Insurance Act and the IRDA Act focus on the current regulatory requirements. The proposed changes provide for more flexibility in operations and are aimed at deletion of certain sections which are no longer relevant in the present context. The amendments also provide for enhancement of enforcement powers and levy of stringent penalties. (ii)Portability of Health Insurance: Insurance Regulatory and Development Authority (IRDA) has issued guidelines vide circular dated 9.9.2011 implementing portability of health insurance policies amongst non-life insurance companies w.e.f. 1.10.2011. The health insurance policy holder by virtue of the said circular can, at the time of renewal, switch:- i) from one insurance company to another insurance company of his choice; or ii) from one insurance plan to another insurance plan with the same insurance company. By the process, the policy holder will not lose the credits gained in terms of waiting periods for pre-existing conditions, time-bound exclusions, etc. The Health Insurance Policy Holder can at the time of Renewal of his/her policies can shift to another Insurance Company for a similar product, if he is not satisfied with the present Insurance Company for any reason, without losing the Credits gained, if renewed with the existing company. This was not the case earlier; because change in insurance company or plans amounted to loss of these credits and the policies started as new, carrying all time limitations afresh. Thus Portability helps to have a level playing field for all insurance companies and the Customer can choose and compare benefits across products and Companies. IRDA has also provided a portability portal facilitating easy data transfer between the insurance companies. (iii)Innovations in Health Insurance: Eighty per cent of all health expenditure in the country is spent through personal resources. This is despite an increase in premium from Rs. 519 crore in 2000-01 to Rs. 9944 crore (19 times) in 2010-11. With increasing demand, the health insurance industry has introduced innovative products to enable the policyholder to plan comprehensive protection against health eventualities by combining hospitalisation indemnity products with supplementary covers or additional policies to meet specific needs of the policyholder. There are products available that provide Daily Hospital Cash benefit in the form of fixed daily allowance which could be used to cover the incidental costs associated with hospitalisation (like travel and stay costs of an attendant). These benefits are available either on standalone basis or as optional component of a packaged health insurance policy. Though most of the health policies offered are annually renewable, insurance companies are finding innovative ways to establish long term arrangements with the policyholder

by offering long term policies or by incentivising timely renewals, free health check-ups, loyalty vouchers for OPD covers, etc. The innovative covers offered by the health insurance industry have to some extent blurred the lines between life and non-life covers. Recently, the Authority has allowed insurance companies to offer pure term life insurance products along with health insurance products under the umbrella of a single product. It is envisaged that the combi-products could enhance the penetration of personal lines of insurance business with a wider product choice to policyholders. (iv)Micro insurance: One of the main objectives of promoting financial inclusion packages is to economically empower those sections of society who are otherwise denied access to financial services, by providing banking and credit services thereby focusing on bridging the rural credit gap. The banking sector is focusing on financial inclusion on a priority basis. Vulnerability to various risk factors is one of the fundamental attributes of these sections of the society. Lack of protective elements may, thus, not serve the objective of promoting financial inclusion packages as the targeted sections may fall back into the clutches of poverty in the event of unforeseen contingencies. Hence, to provide a hedge against these unforeseen risks, micro insurance is widely accepted as one of the essential ingredients of financial inclusion packages. Micro insurance regulations issued by IRDA have provided a fillip in propagating micro insurance as a conceptual issue. The micro insurance regulations have been made effective from 2005. These regulations are in addition to the obligations for rural and social sector business to be done by all insurers on an annual basis. There were 10482 (PY 8678) micro insurance agents operating in the micro insurance sector as at the end of 2010-11. The new business premium secured during the year was Rs. 130.40 crore (Rs. 243.41 crore in 2009-10) on 36.51 Lakh lives (1.68 crore lives in 2009-10) in group category and Rs. 158.22 crore premium (Rs. 158.22 crore in 2009-10) on 1.53 crore policies (0.33 crore policies in 2009-10) in the individual category. An amount of Rs. 208.43 crore (Rs. 178 crore in 2009-10) was paid on 50805 claims (43463 claims in 2009-10) in group category and Rs. 17.04 crore (Rs. 8.19 crore in 2009-10) on 11391 policies (7508 policies in 2009-10) in the individual category during the year 2010-11. (v)Investments by the insurance sector: During 2009-10, the IRDA aligned the definition of infrastructure facility with that of the Reserve Bank of India (RBI) thereby creating more room for the insurers to invest in infrastructure sector. The Authority has also relaxed the ceiling of investments in infrastructure to 20 per cent in a single investee company as against 10 per cent earlier. The limit is applicable to the combination of both debt and equity taken together without sub ceilings in instruments satisfying certain criteria. An additional exposure of 5 per cent has been permitted in debt alone with prior approval of the respective insurers Investment Committee. Further strengthening on the risk management structure, IRDA has issued guidelines on the scope for Internal and Concurrent Audit for investment operations of insurance companies to monitor investment of both traditional and unit

linked portfolio, at a closer level with the aim of mitigating risk. Similar, stipulations are also applicable to non-life insurance companies. The guidelines for audit of Investment Risk Management Systems and Processes were also issued during the year. The total funds invested by life insurers as on 31st March, 2011 was Rs. 1430118 crore (Rs. 1205155 crore in 2009-10), of these Rs. 399116 crore (27.91 per cent of total funds) represents ULIP funds and the remaining Rs. 1031002 crore (72.09 per cent) is the contribution by traditional products. Non-Life insurers have contributed around 5.45 per cent of total investments made by the insurance industry. The total amount of investments made by the sector, as on 31st March, 2011, was Rs. 82520 crore (Rs. 66372 crore as on 31st March, 2010). During 2010-11, the net increase in investments by the non-life industry stood at Rs. 16148 crore (24.33 per cent growth over previous year). (vi)Initiatives at enhancing public disclosures: With a view to improving transparency in operations, the Authority has been working towards enhancing disclosures to be made by insurance companies on periodic basis. A major step in this direction has been the issuance of disclosure guidelines in January, 2010. The stipulations on disclosures to be made by insurance companies have been strengthened by the Authority to fill the gap in availability of information in the public domain. These disclosures are required to be made through (i) Publication in Newspapers; and (ii) Hosting on the respective company websites, effective from the period ended 31st March, 2010. This initiative has placed the insurance companies, which are presently not publicly listed entities, at par with the listed entities in the corporate world in terms of public disclosures. Listed corporate entities are governed by the terms of the Listing Agreement, which amongst other things provides for public disclosure of performance on a quarterly basis. (vii)Financial Condition Report (FCR) for non-life insurance companies: The non-life insurance companies have been mandated to submit the Financial Condition Report annually, effective 31st March, 2010 for the said financial year in the prescribed format. The objective of the FCR is to facilitate analysis of the current block of business as on the valuation date to bring out clearly the challenges the insurers face in terms of meeting the solvency requirements, their profitability and other risks viz. morbidity, liquidity, credit and expense, investment return, asset-liability mismatch, etc. This experience will also indicate the insurers position on these parameters for the next one year. With this initiative, the Authority has expanded its mandate on the submission of the FCR beyond the life insurance companies to also bring in the non-life insurers within the ambit of such reporting. (viii)Initiatives at AML FATF: Under the existing framework, the Inter-Ministerial Coordination Committee on AML/CFT (IMCC) has been set up as the co-ordinating body on issues relating to membership into FATF

and further follow up processes. The inputs for the process and implementation of the recommendations are being handled by the respective regulators/agencies. Based on the initiatives of the respective regulators/agencies India has been granted membership of the FATF in June, 2010. Concerns expressed by FATF in terms of implementation of certain recommendations are being addressed through the approved action plan which has been submitted to the Secretariat of the FATF. The existing framework has worked satisfactorily and has delivered in terms of India being granted the membership of FATF. More recently, the National Regulatory Framework Assessment Committee comprising of representatives from the financial sector regulators and the Government agencies has been constituted to address various regulatory concerns and to facilitate the process of plugging the various gaps observed in compliance with the various recommendations. IRDA issued the guidelines on Anti-Money Laundering Programme for the insurance industry on 31st March 2006. Insurers are required to ensure that a proper AML policy framework is in place effective from 1st August 2006 in case of life insurance companies and 1st January 2007 in case of non-life insurance companies. (ix)Data Warehouse: The Authority has constituted the Insurance Information Bureau (IIB), an advisory body which is collecting, processing and disseminating data. IIB has been formed to ensure that the business data of insurance companies is collected and processed in an orderly manner and is made available at regular intervals. Hence, it is useful for the various market players, researchers, policyholders as well as the public at large for real-time decision making. IIB functions as a single point official reference for the entire data requirement on the insurance sector. All the necessary decisions regarding processing and dissemination of data are being undertaken as per the policy laid down by the Bureau. All non-life insurers are required to upload the insurance data on motor, health and other lines of business online as per the data formats prescribed and provided by IRDA. As part of the initiative, aggregate level data for the nonlife industry as a whole is made available to the insurers for making better underwriting decisions.

Government Sponsored Socially Oriented Insurance Schemes

Aam Aadmi Bima Yojana(AABY) Janashree Bima Yojana Shiksha Sahayog Yojana (SSY) Micro-Insurance Products Varishtha Pension Bima Yojana (VPBY)

Universal Health Insurance Scheme (UHIS) National Agricultural Insurance Scheme (NAIS) Pilot Modified National Agricultural Insurance Scheme (MNAIS)

2. BANKING DIVISION

The Banking Division looks after issues relating to Public Sector Banks and administers policies having a bearing on the working of banks and term lending Financial Institutions such as the NABARD, SIDBI, NHB, IIFCL, EXIM Bank, IFCI, IDFC, IIBI etc. MAJOR FUNCTIONS Programmes/Schemes New Initiatives Acts & Rules Work allocation among Sections Financial Institutions and others Financial Inclusion Priority Sector Industrial Finance and Micro Small & Medium Enterprise Sector Circulars Banking Statistics Public Sector Banks Regional Rural Banks Private Sector Banks Foreign Banks Office of Custodian Banking Ombudsman (119 KB) Senior Level Appointments Recent Updates on Legislative Front The Micro Finance Institutions(Development and Regulation) Bill (714 KB)

3.PENSION REFORMS DIVISION

Pension Reforms Division The Pension Reforms Division deals with various issues and policy matters of pensions including the New Pension System (NPS) which was introduced for newly recruited Central Government employees with effect from 1st January 2004. Legislative proposals / amendments concerning the Pension Fund Regulatory and Development Authority (PFRDA) including the Central Recordkeeping Agency (CRA) and pension funds are also dealt by the Division.

What the Pension Reforms Section Does The Pension Reforms Section of the Department of Financial Services is concerned with the issues and policy matters relating to pension reforms including the New Pension System (NPS). The Pension Reforms Section is responsible for formulating legislative proposals concerning the Pension Fund Regulatory and Development Authority (PFRDA). The Pension Reforms Section is also responsible for administrative issues concerning the Interim Pension Fund Regulatory and Development Authority (Interim PFDRA).

PENSION REFORMS IN INDIA While pension reforms in most countries initially are driven by the budgetary difficulties of supporting costly public pension systems, the longer term problems of ageing of the population and social change, including breakdown of traditional family support for old age income security, are equally important factors. 2. In India, in the absence of a country-wide social security system (formal pension coverage being about 12% of the working population), while the ageing and social change are important considerations for introducing pension reform in the unorganised sector, fiscal stress of the defined benefit pension system was the major factor driving pension reforms for employees in the organised public sector (Government employees). There were series of Budget announcements starting from 2001-02 to 2010-11 underlining need for pension reforms for both Central Government and for unorganised sector, of course, for different reasons. Introduction of the New Pension System 3. The Government had introduced the New Pension System (NPS) from 1st January, 2004 through a notification dated 22nd December, 2003 for new entrants to Central Government service, except to Armed Forces. The Government has constituted an interim regulator, the Interim Pension Fund Regulatory and Development Authority (PFRDA) through a Government Resolution in October, 2003 as a precursor to a statutory regulator. This Resolution was re-issued on 14th November 2008. The design features of the New Pension System (NPS) are selfsustainability, scalability, individual choice, maximising outreach, low-cost yet efficient, and pension system based on sound regulation (Please see the Press Release on NPS). Establishment of Institutional Framework of NPS 4. The National Securities Depository Limited (NSDL) has been selected as the Central Recordkeeping and Accounting Agency (CRA) by PFRDA and has commenced operation. The contributions under NPS are now being sent to CRA. PFRDA has appointed three pension fund managers, a custodian and a trustee bank. The accumulation and contribution of subscribers of NPS, who are Central Government Employees, are invested based on the investment guidelines prescribed for the non-government provident funds by the Ministry of Finance (Please see the Press Release and the Notification on Investment Pattern). However, the investment guidelines for NPS for all citizens have been prescribed by PFRDA and are available at their website at http://www.pfrda.org.in. Extension of NPS to State Governments, Autonomous Bodies and Un-organised Sector 5. NPS has also been extended to new segments (autonomous bodies, State Governments and unorganised sector) and introducing micro-pension initiatives. NPS has been adopted resoundingly

by the State Governments. Twenty seven State Governments and Union Territories have notified adoption of NPS for their new employees. Twenty Five State Governments and Union Territories have executed agreement with CRA and have also executed agreement with NPS Trust. Eleven State Governments have registered their nodal offices and subscribers with CRA. Twenty Two State Governments have started uploading data and Eighteen State Government transferring contribution amount in NPS. 6. After receiving Governments approval for extending the NPS to all citizens including the unorganised sector workers PFRDA has rolled out the NPS architecture for all citizens of the country on a voluntary basis from 1st May, 2009. The information on NPS for all citizens is available on the PFRDAs website at http://pfrda.org.in/. 7. In order to expand the reach of the NPS countrywide, Interim PFRDA invited the Department of Posts to join the NPS as a POP. Subsequently, on receipt of a formal proposal from the Department of Posts, Interim PFRDA appointed the Department of Posts as a POP in November, 2009. The Department of Posts has been offering NPS at 807 branches as on 31.12.2011 but proposes to eventually extend its NPS network to all of its electronically connected branches. This will enable the Department of Posts to make NPS available within the easy reach of all citizens in the remotest corners of the country. Several new initiatives were started like: adding a Tier II to the NPS that will serve as a savings account for the pension subscriber with effect from 1st December, 2009. development of CRA- Lite - a low cost version of NPS meant to enrol people of lower economic strata like self help groups, affinity groups etc. It has also been approved to increase the maximum entry age under the NPS to 60 years, as against the prevailing 55 years to enable more people to join the NPS. 8. As on 4th August, 2012 a total of 9,97,548 employees of the Central Government are already a part of NPS. The total corpus being managed under the NPS is Rs.19,362 crores. Employer / Sector Number of Subscribers Corpus under NPS (in Crore)

The status of NPS in details is as under:: S. No. 1. Central Government State Government Private Sector NPS Lite 36,30,864 9,97,548 13,140

2. 3. 4. Total

13,31,588 1,08,005 11,83,723 19,362

5,479 444 299

BUDGET ANNOUNCEMENTS RELATED TO PENSION REFORMS

Budget Speech 2011-2012 Para 34 (iii) The financial sector reforms initiated during the early 1990s have born good results for the Indian economy. The UPA Government is committed to take this process further. Accordingly, I propose to move the following legislations in the financial sector: .(iii) The revised Pension Fund Regulatory and Development Authority Bill, first introduced in 2005; Para 106 I had announced a co-contributory pension scheme 'Swavalamban' in the Budget 2010-11. This scheme has been welcomed by the workers in unorganised sector. Over 4 lakh applications have already been received. On the basis of the feedback received, I am relaxing the exit norms whereby a subscriber under Swavalamban will be allowed exit at the age of 50 years instead of 60 years, or a minimum tenure of 20 years, whichever is later. I also propose to extend the benefit of Government contribution from three to five years for all subscribers of Swavalamban who enroll during 2010-11 and 2011-12. An estimated 20 lakh beneficiaries will join the scheme by March 2012.

Para No. 90

To encourage the people from the un-organised sector to voluntarily save for their retirement and to lower the cost of operations of the New Pension Scheme (NPS) for such subscribers, Government will contribute Rs. 1000 per year to each NPS account opened in the year 2010-11. This initiative, Swavalamban will be available for persons who join NPS, with a minimum contribution of Rs. 1000 and a maximum contribution of Rs. 12000 per annum during the financial year 2010-11. The scheme will be available for another three years. Accordingly, I am making an allocation of Rs. 100 crore for the year 2010-11. It will benefit about 10 lakh NPS subscribers of the un-organised sector. The scheme will be managed by the interim Pension Fund Regulatory and Development Authority. Para No. 91 I also appeal to the State Governments to contribute a similar amount to the scheme and participate in providing social security to the vulnerable sections of the society.