On 23 July, seven pension fund managers (PFMs) got their letters of appointment, but HDFC Pension Fund was rejected.

The application by HDFC Life, the sponsor of HDFC Pension Fund, has been rejected at the appointment stage on grounds that it “did not meet the eligibility condition of profits in all the immediately preceding three years”, said a statement by HDFC Standard Life Insurance Co. Ltd.

The Pension Fund Regulatory and Development Authority (PFRDA) is looking at the three fiscal years (FY11, FY12 and FY13) preceding the request for proposal (RFP) for bidding, which was announced in January, since FY14 had not yet ended. HDFC Life says that the three years should include FY14, which would then make it eligible.

The matter is now sub judice as HDFC Life has filed a writ petition in the Delhi high court. “The Delhi high court vide its order dated July 30, 2014 has granted an interim stay in the matter and directed that HDFC Pension be permitted to carry on the pension fund management business,” said the company statement.

PFRDA officials familiar with the development confirmed the directive.

“In light of the court directive, the NPS (National Pension System) trust would be issuing a letter of continuation to HDFC Pension Fund only till the writ is disposed of,” said a PFRDA official on condition of anonymity.

HDFC Pension Fund will have to manage the funds in the interim at the new fund management cost of 0.01%.

In January, PFRDA decided to go back to the original design of selecting pension fund managers (PFMs) through a process of bidding. The original design was discarded in 2012 when Yogesh Agarwal, then chief of PFRDA, decided to do away with the bidding process and open the doors to many more PFMs as against the six PFMs that were selected in 2009.

Three new PFMs joined, and one exited due to the extremely low fund management fee of 0.0009%, taking the total tally to eight. The fund management charge was also increased to a maximum of 0.25%.

HDFC Pension Fund was barred from participating in the commercial bid, which included bidding on the fund management charge. Even then the biggest contention was around the period of profitability and HDFC Life took the matter to court.

“HDFC Life had earlier filed a writ petition challenging the PFRDA’s wrongful disqualification of HDFC Life’s bid. The Delhi high court had directed PFRDA to evaluate the bid submitted by HDFC Life in accordance with the steps outlined in the RFP,” said the company statement. “Accordingly, PFRDA evaluated our bid, cleared HDFC Life’s technical and the commercial bid and called upon HDFC Life to match the lowest bid, which it undertook to do. HDFC Life was, therefore, awaiting a final confirmation of appointment from the regulator,” added the statement.

Reliance Capital Pension Fund Ltd bid the lowest fund management charge of 0.01%, and six PFMs, including HDFC Pension Fund, agreed to match this. Birla Sun Life Insurance Co. Ltd, a new entrant, also agreed to match the lowest bid, but DSP BlackRock Pension Fund Managers Pvt. Ltd, an existing PFM, and Tata Asset Management Co. Ltd opted out of the race due to the low fund management charge.