Public-sector banks may be allowed to expense their more than 10,000-crore potential pension liabilities over many years, sparing them from taking a one-time blow on their profits and net worth due to new accounting norms.
The step will come as a breather for banks which are experiencing a quantum increase in liabilities after the government raised the gratuity limit and effected a 17.5% wage revision and pension grant to retired employees.
The relaxation will, however, apply only for the gratuity limit enhancement, with no changes in accounting treatment being considered for wage revision or the pension burden.
Wage revision and the case of pension was a decision which the management of the banks took in consultation with their unions, so the impact of it has to be borne by the banks in their income statement, the official said, adding that an announcement in the matter is expected shortly.
In the last Union Budget, the government amended the Gratuity Act, leading to an employee receiving 10 lakh on retirement instead of a capped 3 lakh. Banks have estimated that the outgo on this would be around 4,000 crore.
Banks had earlier approached RBI as well as the Institute of Chartered Accountants of India (ICAI) to relax the accounting norms to minimise their financial burden due to these liabilities. Concerned that the total pension and gratuity outgo can be as high as 10,000 crore, they sought to relax the accounting norms applicable for this type of a treatment.
If banks do not receive any relaxation, profits will dip and reserves will shrink. A lower reserves will mean that banks' capital adequacy ratio that reflects the financial soundness of banks, which includes reserves, equity and senior debt, will fall significantly. RBI mandates that banks maintain a capital adequacy ratio of 9% and most banks currently have a CAR in the region of 11-14%.
Under the current framework - accounting standard-15 (AS-15), banks cannot amortise pension and gratuity liabilities. The international equivalent to this standard, called IAS-19, with which the current standard will converge eventually, however, provides for a 'corridor approach', meaning the regulator can exempt them from the rules.
As per the roadmap on International Financial Reporting Standards (IFRS) as issued by the ministry of corporate affairs, banks will converge with the global set of norms from 2013.
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