PENSION OPTION; BANKS FACE RS.12K CR. LIABILITY

Banks are awaiting clarity on accounting for a liability of around Rs 12,000 crore due to nearly 2.75 lakh serving and retired employees opting for a second pension option.

Bankers said they had approached the Reserve Bank of India, seeking a longer duration to provide for the amount. Although banks have started providing for a higher pension bill, setting aside the fund to meet the liability that arises over the next few years in one shot would dent their balance sheets.

Around 3.3 lakh public sector bank employees are estimated to be eligible to get pension post-superannuation as part of a second option being given to them. A second pension option was part of the wage settlement agreed upon by banks and unions, which had capped the average pay increase at 17.5%. Earlier, they could only get provident fund. Among the public sector lenders, only the SBI group had the provision of giving pension to all its employees before the wage settlement.

As per the pact, bank managements will provide 70% of the deficit, while the remaining will have to be borne by the employee. The United Forum of Bank Unions , which negotiated the wage pact and pension with Indian Banks’ Association, had said that employees had to pay 2.8 times of their Nov 2007 salary from the arrears of the wage settlement.

Banks are in various stages of getting a firm idea on the number of employees as several of them had given time until December for employees to opt for the scheme. Bankers, however, expected over 90% of serving and retired employees to opt in favour of pension.

Lenders had taken up the issue with RBI last year, which in turn is discussing it with Institute of Chartered Accountants of India that sets accounting standards . Under existing norms, at the end of their financial year in March, banks have to set aside funds to meet any actuarial shortfall. The deficit or surplus for pension is done through a technical exercise conducted by actuaries.

 
FUNDS NEEDED

Around 3.3 lakh public sector bank employees are estimated to be eligible to get pension post-superannuation as part of a second option being given to them. A second pension option was part of the wage settlement agreed upon by banks and unions. Bankers expect over 90% of serving and retired employees to opt in favour of pension.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/pension-option-banks-face-rs-12k-cr-liability/articleshow/7357640.cms