Valuation Guidelines for Securities Held Under NPS
PFRDA circular PFRDA/2023/31/REG-PF/02 · 16 Nov 2023
Official title
Addendum to the Valuation Guidelines for securities held under NPS issued vide circular no. PFRDA/2019/23/REG-PF/4 dt 21-Nov-2019
PFRDA circular PFRDA/2023/31/REG-PF/02 · 16 Nov 2023
Official title
Addendum to the Valuation Guidelines for securities held under NPS issued vide circular no. PFRDA/2019/23/REG-PF/4 dt 21-Nov-2019
Summary
Check the official recordThe Pension Fund Regulatory and Development Authority (PFRDA) has issued an addendum to its 2019 valuation guidelines for non-government debt securities held under the National Pension System (NPS). This update supersedes the 2013 NPA guidance note, establishing new classification criteria for Investment Grade, Below Investment Grade, and Default securities. It mandates specific valuation, accounting, and haircut applications for these categories. Pension Funds must now provide enhanced monthly disclosures regarding Below Investment Grade and Default securities, including total dues and haircuts relative to Assets Under Management (AUM). Additionally, the circular defines the identification and treatment of 'loss assets,' requiring board or investment committee approval for write-offs.
What you must do
Key dates
Who is affected
Thresholds
Exceptions
If you do not comply
PFRDA/2023/31/REG-PF/02
Date: 16th November, 2023
To
SUBJECT: Addendum to the Valuation Guidelines for securities held under NPS issued vide circular no. PFRDA/2019/23/REG-PF/4 dated 21st November 2019
These guidelines are being issued in exercise of powers of the Authority under sub-clause (b) of sub-section (2) of Section 14 read with Section 23 of the PFRDA Act, 2013 and sub-regulation (1) of Regulation 14 of PFRDA (Pension Fund) Regulations, 2015 as amended from time to time.
The below mentioned guidelines is being issued as an addendum to circular no. PFRDA/2019/23/REG-PF/4 dated 21st November 2019.
These guidelines will supersede the PFRDA (Identification, Income Recognition and Provisioning of NPA) Guidance Note 2013 as valuation of securities under NPS are being undertaken on the principles of fair valuation and classification of debt securities (other than government securities) under NPS stands revised as detailed hereunder.
These guidelines shall also substitute the consequential changes/revisions in provisions of relevant guidelines/circulars/directions issued by the Authority.
These guidelines shall be effective from the date of its issuance.
Classification of Debt Securities (other than government securities) held under NPS:
(i) Investment Grade – debt security rated upto BBB- (long term rating) or upto A3 (short term rating) by SEBI registered Credit Rating Agency (ii) Below Investment Grade – debt security rated below BBB- (long term rating) or below A3 (short term rating) by SEBI registered Credit Rating Agency (iii) Default – debt security shall be classified as “Default” if the interest and / or principal amount has not been received, on the day such amount was due or when such security has been downgraded to “Default” grade by a Credit Rating Agencies (CRAs). In this respect, Pension Funds shall promptly inform to the valuation agencies and the CRAs, any instance of non-receipt of payment of interest and / or principal amount (part or full) in any security
Valuation (as per guidelines) and Accounting
(i) Investment Grade – as per PFRDA (Preparation of Financial Statements and Auditor's Report of Schemes under NPS) Guidelines 2012 (ii) Below Investment Grade – on the date of classification; a) indicative hair cut (as per valuation guidelines) shall be applied to the principal amount b) indicative hair cut (as per valuation guidelines) shall be applied to any interest accrued on such debt security c) interest accrual to be continued with the applicable haircut
On being re-classified as Investment Grade, as per PFRDA (Preparation of Financial Statements and Auditor's Report of Schemes under NPS) Guidelines 2012
(iii) Default – on the date of classification; a) indicative hair cut (as per valuation guidelines) shall be applied to the principal amount b) indicative hair cut (as per valuation guidelines) shall be applied to any interest accrued on such debt security c) interest accrual to be discontinued
However, for monitoring purposes, Pension Fund shall continue to calculate the interest accrued and due on the debt security separately through the system as a mirror account but should not be accounted for in the books of account of scheme.
Interest on such debt security is to be recognized and booked as income only when it is actually received (i.e. on cash basis).
Where the date of redemption of a debt security has lapsed, the amount not redeemed shall be shown as ‘Sundry Debtors’ (i.e. Redemption Receivable on Investment classified as ‘default’) and not as investment, provided that where an investment is redeemable by installments, it will be shown as an investment until all installments have become overdue. However, accounting entries should be passed for making provisions against such debt securities shown as ‘Sundry Debtors’ to reflect the realizable value of security in terms of the valuation guidelines.
Receipt of amounts from debt issuers
(i) Investment Grade – as per PFRDA (Preparation of Financial Statements and Auditor's Report of Schemes under NPS) Guidelines 2012 (ii) Below Investment Grade – on the date of receipt; a) to be adjusted 1st towards outstanding interest b) balance amount, if any, to be adjusted towards interest amount accounted as haircut c) surplus, if any, to be adjusted towards outstanding principal and then towards principal amount accounted as haircut. (iii) Default – on the date of receipt; a) Before due date of redemption of debt security * to be adjusted 1st towards outstanding interest and then towards interest amount accounted as haircut * balance amount, if any, to be adjusted towards outstanding principal and then towards principal amount accounted as haircut. b) After due date of redemption of debt security * to be adjusted against outstanding amount i.e Sundry Debtors and corresponding reversal of provision held against such debt security. * balance amount, if any, to be adjusted towards interest income
Disclosures by Pension Funds in their monthly portfolio details
a) Security-wise disclosures of debt securities classified as ‘Below Investment Grade’ and ‘Default’ in the monthly scheme portfolio details hosted on their website. In the disclosed list of investments an asterisk mark shall be given against such securities. b) The total amount due (principal + interest) against the debt securities classified as ‘Below Investment Grade’ and ‘Default’ shall be disclosed scheme wise and its proportion to the respective scheme assets under management (AUM). c) The total amount of haircut (principal + interest) taken against the debt securities classified as ‘Below Investment Grade’ and ‘Default’ shall be disclosed scheme wise and its proportion to the respective scheme assets under management (AUM).
Identification and treatment of ‘loss assets’:
A ‘loss asset’ is one which is deemed as un-recoverable or its value has been diminished and has been identified by the Pension Fund or scheme auditors as such. On classifying such investments as loss asset, the asset should be written off by the Pension Fund after obtaining approval from its Board of Directors or its Investment Committee (subject to report to the Board of Directors). For any amounts received on ‘loss asset’, it shall be adjusted against the written off amount of such asset.
Yours sincerely, (Signature) (Mono MG Phukon) Chief General Manager
पीएचआरडीए/2023/31/आरजी-पीएफ/02
दिनांक : 16 नवंबर, 2023
प्रति,
विषय : परिपत्र सं पीएचआरडीए/2019/23/आरजी-पीएफ/4 दिनांक 21 नवंबर 2019 के माध्यम से एनपीएस के अंतर्गत धारित प्रतिभूतियों के लिए मूल्यांकन दिशानिर्देशों हेतु परिशिष्ट
ये दिशानिर्देश, पीएचआरडीए अधिनियम, 2013 की धारा 14 की उप-धारा (2) के उप-खंड (ख) के साथ पठित उसकी धारा 23 तथा पीएचआरडीए (पेंशन निधि) विनियम, 2015 (समय-समय पर यथासंशोधित) के विनियम 14 के उप-विनियम (1) द्वारा प्राधिकरण को प्रदत्त शक्तियों का प्रयोग करते हुए जारी किए गए हैं।
निम्नलिखित दिशानिर्देश, परिपत्र संख्या पीएचआरडीए/2019/23/आरजी-पीएफ/4 दिनांक 21 नवंबर 2019 के परिशिष्ट के रूप में जारी किए गए हैं।
ये दिशानिर्देश, पीएचआरडीए (पहचान, आय मान्यता और एनपीए का प्रावधान) मार्गदर्शन नोट 2013 का स्थान लेंगे क्योंकि एनपीएस के अंतर्गत प्रतिभूतियों का मूल्यांकन, एनपीएस के अंतर्गत ऋण प्रतिभूतियों (सरकारी प्रतिभूतियों से भिन्न) के उचित मूल्यांकन और वर्गीकरण के सिद्धांतों पर किया जा रहा है, जो संशोधित रूप में नीचे वर्णित है।
ये दिशानिर्देश प्राधिकरण द्वारा जारी संगत दिशानिर्देशों/परिपत्रों/निर्देशों के प्रावधानों में परिणामी परिवर्तनों/संशोधनों को भी प्रतिस्थापित करेंगे।
ये दिशानिर्देश, इनके जारी होने की तिथि से प्रभावी होंगे।