National Pension System: Will IL&FS crisis affect your NPS investment?
National Pension System (NPS): The IL&FS (Infrastructure Leasing & Financial Services) crisis is likely to have an impact on NPS investors as well
National Pension System (NPS): The IL&FS (Infrastructure Leasing & Financial Services) crisis is likely to have an impact on NPS investors as well. Experts say the fixed income part of the portfolio of NPS investors will likely be affected because of the crisis that shook the stock market last week. According to a report by the Economic Times, around Rs 1500 crore worth of NPS investments in IL&FS are likely at risk.
The effect of IL&FS crisis is also likely to be felt in the insurance sector as the leading insurer of the country, Life Insurance Corporation (LIC) of India holds 25% stake in the IL&FS. LIC is also one of the NPS fund managers in the country.
There are eight pension fund managers approved by the Pension Fund Regulatory and Development Authority (PFRDA). Apart from LIC Pension Fund, other managers are Birla Sun Life Pension Scheme, HDFC Pension Fund, ICICI Prudential Pension Fund, Kotak Pension Fund, Reliance Capital Pension Fund, SBI Pension Fund and UTI Retirement Fund.
How big is IL&FS crisis
Early this month, it came to light that IL&FS group had defaulted on a loan of Rs 1000 crore from SIDBI, while one of its subsidiary had also defaulted Rs 500 crore dues to a development finance institution. As per a Nomura India report, the IL&FS has around Rs 35,000 crore consolidated debt, IL&FS Financial Services has Rs 17,000 crore debt.
A number of several long-term and short-term borrowing programmes of IL&FS have been downgraded to 'default' or 'junk' grades by credit rating agencies, while regulators are probing alleged delay in disclosure about certain loan defaults.
Capital markets regulator Sebi, the Reserve Bank of India, the Corporate Affairs Ministry and the Finance Ministry have received complaints about the alleged wrongdoings at IL&FS and its various group entities, including the listed ones.
The PFRDA recently ordered NPS fund managers to not put more that 5% of their corpus in Mutual Funds for equity investment. The pension regulator also directed the managers to not levy an investment fee on this (5%) corpus.
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IL&FS is planning to sell its financial services unit and additional assets worth Rs 4500 crore to pay down debts to avoid bankruptcy.
(With agency inputs)