RBI/2010-11/400
DBOD.No. BP.BC.80/ 21.04.018/2010-11
February 9, 2011
All Public Sector Banks
Dear Sir,
Re-opening of pension option to employees of
Public Sector Banks and enhancement in gratuity limits - Prudential Regulatory
Treatment
Consequent on the re-opening of pension option to employees of Public Sector
Banks and enhancement in gratuity limits following the amendment to Payment of
Gratuity Act 1972, banks and the Indian Banks’ Association (IBA) have approached
us for the amortisation of the enhanced expenditure resulting therefrom.
- The additional liability on account of re-opening of pension option
for existing employees who had not opted for pension earlier as well as the
enhancement in gratuity limits should be fully recognised and charged to
Profit and Loss Account for the financial year 2010-11.
- However, banks have expressed that it would be difficult to absorb the
large amount involved in a single year. We have examined the issues from a
regulatory perspective and it has been decided that banks may take the
following course of action in the matter:
- The expenditure, as indicated in paragraph 2 above, may, if not fully
charged to the Profit and Loss Account during the financial year 2010-11, be amortised over a period of five years {subject to (b) and (c) below} beginning
with the financial year ending March 31, 2011 subject to a minimum of 1/5th of
the total amount involved every year.
- Consequent upon the introduction of International Financial Reporting
Standards (IFRS) from April 1, 2013 for the banking industry as scheduled, the
opening balance of reserves of banks will be reduced to the extent of the
unamortised carry forward expenditure.
- The unamortised expenditure carried forward as aforementioned shall not
include any amounts relating to separated/retired employees.
- Appropriate disclosures of the accounting policy followed in this regard
may be made in the Notes to Accounts to the financial statements.
- In view of the exceptional nature of the event, new pension option and
enhanced gratuity related unamortised expenditure would not be reduced from Tier
I capital.
- Banks should keep in view 3(b) above while planning their capital
augmentation, suitably factoring in Basel III requirements also (a separate
circular would be issued on Basel III).
Yours faithfully
(P R Ravi Mohan)
Chief General Manager