Mumbai, June 28: The Reserve Bank of India today said banks must set up subsidiaries to manage pension funds.

In its guidelines for banks on pension funds, released today, the RBI said banks would have to take prior permission to enter the business.

Only those with a net worth of Rs 500 crore or more and a credit adequacy ratio of up to 11 per cent should apply for permission.

Besides, banks should have made a net profit for the last three consecutive years and reported a return on assets of at least 0.6 per cent.

Their non-performing assets should also be less than 3 per cent.

“Management of the bank’s investment portfolio should be good and there should not be any adverse remarks in the report involving supervisory concerns,” the guidelines said.

The composition of the board of directors of the subsidiary should be broad-based and follow the norms prescribed by the Pension Funds Regulatory Development Authority (PFRDA).

The parent bank should maintain an arm’s length relationship with the subsidiary and any transaction between them should be at market rates.

The Reserve Bank said the guidelines had been introduced to provide safeguards against risks.

It said it wanted to ensure that only strong and credible banks entered the business.

Four entities have been shortlisted by the PFRDA for managing the pension corpus of government employees who have joined the service after 2004.