Banks are worried that higher outgo due to pension and gratuity would dent their profits this year.
CEOs of large commercial banks have, therefore, decided at a closed door meeting to approach the Reserve Bank of India and the Institute of Chartered Accounts of India (ICAI) to relax the accounting norms so that the burden on pension and gratuity liabilities is minimised.
The bank management had estimated pension fund liabilities to be in the region of `6,000 crore after negotiating wages with bank employees. The present pension fund structure is such that banks and employees contribute equally during the service period and in return get a defined pension after retirement.
Banks are now worried that apart from pension liabilities, they also have to provide for a higher gratuity fund — something that they had not factored in earlier. In the last Union budget, the government proposed the amendment of the Gratuity Act, wherein the employee would receive `10 lakh on retirement instead of a cap of `3 lakh. Banks have estimated that the outgo on this would be around `4,000 crore.
In 2002, when PSU banks had gone for voluntary retirement schemes, RBI had allowed banks to amortise the liabilities for five years, wherein the bank deducts one-fifth of the payment above the line for the next five years.
If banks do not receive any relaxation, profits will dip and reserves will shrink. A lower reserves will mean that banks’ capital adequacy ratio (which includes reserves, equity and senior debt) will also fall significantly. RBI mandates that banks maintain a capital adequacy ratio of 9% and most banks current have a CAR in the region of 11-14%.
Some banks say under the current frame work — accounting standard — 15 (AS-15) banks cannot amortise pension and gratuity liabilities but at the same time AS-15 provides for ‘corridor approach’ wherein RBI could provide a special dispensation on relaxing the rules.
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