Unfunded Old Pension Scheme Expected to Exert Severe Financial Pressure on States, Says MoS Finance

The Old Pension Scheme (OPS), which lacks funding, is expected to put significant financial strain on states, especially as life expectancy rises. This could limit capital spending and create long-term fiscal challenges across generations, according to Minister of State for Finance Pankaj Chaudhary. He shared this information with Parliament, highlighting the potential financial impact on states reverting from the National Pension System (NPS) to OPS.

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Fiscal Implications of OPS

Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have informed the government about their shift back to OPS. The Comptroller and Auditor General's reports have pointed out the fiscal consequences of this move. Chaudhary noted that OPS, being an unfunded pension scheme, could increase fiscal liabilities over time, potentially affecting states' Fiscal Responsibility and Budget Management (FRBM) targets.

The Reserve Bank of India's report titled "State Finance: A Study of Budgets of 2022-23" suggests that any immediate savings from reverting to OPS are temporary. By delaying current expenses, states risk accumulating unfunded pension liabilities in the future. According to the RBI Bulletin from September 2023, while OPS might reduce pension expenses initially, it could lead to a significant build-up of liabilities in the long term.

Banking Sector Performance

Chaudhary also addressed questions about the banking sector's performance. Scheduled Commercial Banks (SCBs) and Public Sector Banks (PSBs) achieved record net profits of Rs 4.01 lakh crore and Rs 1.78 lakh crore respectively during 2024-25. In the first half of 2025-26, SCBs reported a net profit of Rs 2.08 lakh crore. The Gross Non-Performing Assets (GNPA) ratio for SCBs decreased to 2.05% in September 2025 from a peak of 11.18% in March 2018.

The Reserve Bank of India initiated an Asset Quality Review in 2015, leading to a strategy known as the 4Rs: recognising NPAs transparently, resolving stressed accounts through effective laws, recapitalising PSBs, and reforming banks and financial systems. These measures have significantly reduced gross NPAs for PSBs.

External Debt Management

India's external debt stood at USD 746 billion by the end of September 2025, with an external debt-to-GDP ratio of 19.2%. The debt service ratio decreased from 6.6% in 2024-25 to 6% by September 2025. Chaudhary highlighted that India's prudent external debt management policy has maintained a stable debt position by focusing on monitoring debt levels and raising sovereign loans with favourable terms.

In response to another query, Chaudhary mentioned that over the past three years, agricultural advances by PSBs and Private Sector Banks have grown at a Compounded Annual Growth Rate (CAGR) of 26% and 11%, respectively. This growth reflects increased support for agriculture from both public and private banking sectors.

The shift back to OPS poses significant fiscal challenges for states due to its unfunded nature. While there may be short-term savings, long-term liabilities could threaten fiscal sustainability. Meanwhile, India's banking sector shows strong profitability and improved asset quality, supported by strategic reforms initiated by the government and RBI.

With inputs from PTI