Wednesday, April 20, 2011

PSU banks to take 4,000-cr hit on pensions - Economic Times

MUMBAI: State-run banks will take a hit of Rs 4,000 crore this fiscal with the banking regulator directing these lenders to provide for the pension liabilities of their retired staffers in the balance sheet for FY10-11.
RBI's decision is bound to reflect in the profitability of these banks this fiscal. Banks had made out a case to RBI to amortise the pension liabilities over the next five years to ease the strain on their books. But the regulator does not appear to be convinced by their argument and conveyed to the Indian Banks' Association, or IBA - the lobbying arm of banks, that lenders would have to set aside funds for their pension liabilities in one shot rather than spreading it out, a senior banker said.
Among the government-run banks, Punjab National Bank , Central Bank of India , Bank of Baroda , Canara Bank and Bank of India have a huge employee base and initial estimates are that the pension liabilities for them could range between Rs 200 crore and Rs 300 crore. For some of the smaller banks such as Corporation Bank , Dena Bank and Andhra Bank , liabilities could be in the range of Rs 100-150 crore each.
SBI , the country's largest bank, will not be impacted by this decision as it has been offering pension benefits to all its employees since its inception unlike other state-run banks who provided post-retirement benefits to only those employees who had opted for the scheme in 2000. In February, RBI allowed banks to amortise pension liabilities for serving employees over five years.
However, in the same circular, the central bank stated that all amounts relating to retired employees need to be provided in 2010-11 itself. Following this, IBA requested RBI to allow banks to amortise the pension liabilities of retired employees as well. "It is estimated that of the total employees who have opted for the pension scheme, 20-25 % are retired employees.
Therefore, IBA had proposed to RBI to allow banks to amortise it over the next five years since it will impact the profitability of banks," pointed out IBA deputy chief executive K Unnikrishnan. He said close to 45,000 retired employees have opted for the pension scheme. While rejecting the proposal, RBI told IBA that the norms cannot be eased as in its view, banks should have anticipated the impact and were even aware of these liabilities during wage negotiations.

The total pension liability for serving and retired employees was estimated at Rs 20,000 crore. However, since money needs to be set aside for only those retired employees who had opted for the pension scheme, the impact on the bottomline could be much lower at around Rs 4,000-4,500 crore. Bankers said RBI may allow banks to dip into their reserves for setting aside money to provide for pension payments of retired bank staffers.
However, the dispensation of dipping into reserves would be made only on a case-to-case basis and only for those banks which may have to take a huge hit on their bottomlines. "The impact will depend upon the amount of provision the bank has already made and the number of retired employees who have opted for the pension scheme," said MD Mallya, chairman of IBA and the CMD OF Bank of Baroda. 
Source - Economic Times  20th April 2011