Public sector banks will have to provide for around Rs 12,000 crore (Rs 120 billion) pension liabilities, according to rough estimates made by these banks.
The Indian Banks' Association is currently in talks with representatives of employees on wage revision. The earlier agreement expired on October 31, 2007, and the revised wages will be applicable retrospectively from November 1, 2007.
Banking sources said the gap between the pension liability of PSU banks and the funds available with these banks is Rs 12,000 crore (Rs 120 billion). This has been worked out as per Accounting Standard 15 of the Institute of Chartered Accountants of India which specifies the accounting treatment of retirement benefits to employers.
When AS-15 became operative in 2006, the initial estimate for the additional pension provisioning was estimated at Rs 6,000 crore (Rs 60 billion). However, the latest wage revision may bring in an additional 275,000 bank employees who opted for the provident fund earlier. Banks may also provide for the pension liabilities of 65,000 employees who have retired but have been seeking resort to the defined pension scheme since 1996. This second time option will require additional provisioning of Rs 6,000 crore (Rs 60 billion), thus making the total liability Rs 12,000 crore (Rs 120 billion).
Sources also explained that banks may have to contribute more to the pension scheme now that the interest rate has started coming down and investments out of the scheme may not yield more.
As per the new standard, an organisation will have to calculate the last salary that will be drawn by an employee and provide for pension and gratuity liability on that basis. Prior to this accounting standard, companies usually provided for the pension and gratuity liability on the basis of their current salaries, but the actual payment is made on the basis of the last drawn salaries.
Bankers said if banks have to provide for the pension scheme, this will have to be adjusted against the total increase in the wage bill. However P H Ventakachalam, general secretary of the All India Bank Employees Association and Convenor, United Forum of Bank Unions, said this is unacceptable.
He also said that the IBA offer of a 10 per cent annual increase wages is also not acceptable. The current wage bill of PSU banks is around Rs 275,000 crore (Rs 2,750 billion). Technically, the wage increase is calculated on the basis of the total establishment expense of banks. Employees up to the cadre of general managers are covered under this.