Thursday, July 14, 2011

RBI wants all PSBs to have uniform pension provision

After coming down heavily on banks for not making adequate provision for increased pension liabilities arising out of wage revision, the Reserve Bank of India (RBI) now wants all public sector banks to have uniform pension liabilities.
According to sources in the banking industry, the central bank sees no reason why each public sector bank should have different pension liabilities, since the inputs which go into calculation of pension provision are nearly the same.
“RBI says the salary structure is same, the mortality rate is similar and the attrition rate is almost the same for all government-owned banks—at around 0.5 per cent. There is no reason for different actuarial estimates for banks. It feels all public sector banks should have similar actuarial estimates,” said a banker after discussing the matter with RBI officials. The basic pension of retirees from all government banks is 50 per cent of the last salary drawn.
Bankers said actuaries of different banks have different estimates, particularly on parameters like the discount rate and the attrition rate for calculating pension liability, which has led to a variation in the burden. As far as the mortality rate is concerned, most banks follow Life Insurance Corporation of India's estimates.
The pension provision issue cropped up in the last quarter of the previous financial year, when State Bank of India (SBI) had sought the regulator's approval for pension provision from the bank's capital reserve for wage increases. As a prudential practice, banks make provision out of their profit and loss account. To use capital reserves for provision, banks need RBI's approval. After RBI’s approval, SBI charged nearly Rs 8,000 crore from its reserves to provide for pension liabilities. As a result, SBI’s capital eroded, with Tier-I capital falling below eight per cent.
Though RBI had allowed SBI to make provisions from reserves for pension liabilities, the regulator had made it clear that such requests would not be entertained in the future. The central bank had come down heavily on the bank’s chairman and managing directors at an interaction. The regulator had also made it clear such practices were non-compliant with International Financial Reporting Standards.
In 2010-11, provisioning had increased sharply because of the pay revisions agreed during the ninth bipartite settlement. Wages were raised 17.5 per cent and a second pension option was given to both current and retired employees. Gratuity limits were also increased from Rs 3.5 lakh to Rs 10 lakh. According to RBI's financial stability report, the expected additional liability for 24 public sector banks was Rs 30,366 crore, which constituted 81.9 per cent of their net profit for 2009-10. Indian Banks' Association has been mandated by RBI to prepare a pension scheme to facilitate the assessment by banks and help provide adequate provisions for such liabilities
Source : Business Standard.


  1. Gratuity limit increased from Rs.3.5 lakh to Rs.10 lakh from 24.05.2010 by Govt. The wage revision was signed on 27.11.2009 and Wages raised 17.5 per cent from 1.11.2007. The Unions and IBA took two years to complete the wage talks. In the process the Unions/IBA forgotten/neglected Gratuity Issue and the Govt increased Gratuity with prospective date i.e 24.05.2010. The Bank Unions failed to demand implementation of Gratuity increase from 01.11.2007 where as the same was implemented for Central Govt Employees from 01.01.2006. In the last 35-odd years several governments have come to power, and some of them got toppled for various reasons. Politicians become crorepathis in four or five years; but the condition of employees deteriorating from bad to worse. The wages were increasing in arithmetic proportion while the prices of the essential commodities were increasing in geometrical proportion. It will be a folly to ignore the realities; facts take their revenge if they are not faced squarely and well. Ultimately the retirees between 1.11.2007 to 23.05.2010 lost their precious gratuity. The banking community are lowest paid PSU employees even after new pay scale. Will Unions take up these issues?

  2. idbi will come in this category or not..whether the staffs of idbi will be benefited from this pension scheme or not...

  3. When the Central Government employees and some other public sector undertakings are qualified for enhanced GRATUITY from 010106, why PSU banks were granted from 240507 only.(Though the date of gazette publication)What about the monetary fate of employees retired from PSU banks in-between 010106 to 23052010?The honorable minister of Labor sri Mallikarjun kharge and his office should think over this partiality and do justice to all and many of the Bank's financial ability is comparatively very good to pay the gratuity from the retrospective effect 010106.please review. TK.