“After coming down heavily on banks for not making adequate provision for increased pension liabilities arising out of wage revision, the Reserve Bank of India (RBI) now wants all public sector banks to have uniform pension liabilities.

According to sources in the banking industry, the central bank sees no reason why each public sector bank should have different pension liabilities, since the inputs which go into calculation of pension provision are nearly the same.

“RBI says the salary structure is same, the mortality rate is similar and the attrition rate is almost the same for all government-owned banks—at around 0.5 per cent. There is no reason for different actuarial estimates for banks. It feels all public sector banks should have similar actuarial estimates,” said a banker after discussing the matter with RBI officials. The basic pension of retirees from all government banks is 50 per cent of the last salary drawn.

Bankers said actuaries of different banks have different estimates, particularly on parameters like the discount rate and the attrition rate for calculating pension liability, which has led to a variation in the burden. As far as the mortality rate is concerned, most banks follow Life Insurance Corporation of India's estimates.

The pension provision issue cropped up in the last quarter of the previous financial year, when State Bank of India (SBI) had sought the regulator's approval for pension provision from the bank's capital reserve for wage increases. As a prudential practice, banks make provision out of their profit and loss account. To use capital reserves for provision, banks need RBI's approval. After RBI’s approval, SBI charged nearly Rs 8,000 crore from its reserves to provide for pension liabilities. As a result, SBI’s capital eroded, with Tier-I capital falling below eight per cent.

Though RBI had allowed SBI to make provisions from reserves for pension liabilities, the regulator had made it clear that such requests would not be entertained in the future. The central bank had come down heavily on the bank’s chairman and managing directors at an interaction. The regulator had also made it clear such practices were non-compliant with International Financial Reporting Standards.

 In 2010-11, provisioning had increased sharply because of the pay revisions agreed during the ninth bipartite settlement. Wages were raised 17.5 per cent and a second pension option was given to both current and retired employees. Gratuity limits were also increased from Rs 3.5 lakh to Rs 10 lakh. According to RBI's financial stability report, the expected additional liability for 24 public sector banks was Rs 30,366 crore, which constituted 81.9 per cent of their net profit for 2009-10. Indian Banks' Association has been mandated by RBI to prepare a pension scheme to facilitate the assessment by banks and help provide adequate provisions for such liabilities.”

Question:  Why RBI has chosen to ignore the fraud committed by SBI chairman during last 4 to 5 years for showing bloated/inflated profits , higher dividend/higher ROA/ ROE/ higher book value took investor or ride, looted them?. Whether AFIR conducted every year by RBI was an eye wash? Why Chairman/ ED  was allowed to loot  incentive of Rs 10 lacs when profits were manipulated and he has not achieved the target set by MOF in SOI. . The detailed analysis on SBI matter has been  sent to you (on 06.07.2011 through e-mail and hard copy by registered post.

Issue No 2

 Why uniform guidelines today when the bank employees pension regulation 1995 which has parliamentary sanction, which have been vetted by RBI itself, already prescribed uniform guidelines for funding and administration of pension fund and pension liability?. Complete guidelines are already available with RBI because they have vetted them, which are mainly as under:

 As per pension regulations 1995, 10% of pay as Statutory contribution every month should be deposited by bank in the pension fund trust.

  In addition to above at the end of each year the bank shall carry out actuarial valuation  and Gap if any

 shall  be met by the bank and deposited in the   pension fund.

  As per 7^th BPS the Bank has to deposit  from 01.11.1997 to 31.10.2002 Statutory 10% contribution +

  Incremental cost of pension (Employees share 8.25%  Plus  Employer share 8.25% ) should be deposited

  in pension fund.

· 

  As per 8^th BPS the Bank has to deposit  from from 01.11.2002 to 31.10.2007  Statutory  10%

contribution + Incremental cost of pension (Employees share 9.25%  Plus Employer share 9.25% )

should be deposited in pension fund.

·As per 9^th BPS the Bank has to deposit  from from 01.11.2007 to 31.10.2012  Statutory  10%

  contribution + Incremental cost of pension (Employees share    13.00%  Plus Employer share 13.00% )

   should be deposited in pension fund.

· As per 9^th BPS one more option of pension to existing employees and the total liability on above account is Rs 6000 cr, out of which 4200 cr is to be borne by the banks and 1800 cr by employees. The banks have recovered Rs 1800 cr from the employees but not deposited/ their share of 4200 crores in the pension fund trust.

Violation of above statutory obligations by the Banks, give right to RBI to issue fresh guidelines and accede to request for amortization?

Question:  Whether Why RBI has ensured that Statutory & Regulatory Compliances are followed by Public Sector banks for above pension liability?. Whether RBI Compliance Policy is worthless when the banks are violating the law settled by  BPS, which have a parliamentary sanction? Whether RBI is choosing to  ignore the fraud committed by Chairman on pension fund & showing bloated/inflated profits , higher dividend/higher ROA/ ROE/ higher book value took investor or ride, looted them?. Whether AFIR conducted every year by RBI was an eye wash?

Why Chairman’s/ EDs were allowed to loot  incentive of Rs 10 lacs when profits were manipulated and in fact they have not achieved the target set by MOF in SOI in the past years?.

Issue No 3

 Amortization of the pension cost.

 ·          RBI circular No DBOD.No.BP.BC:80/21.04.018/2010-11 dated 09.02.2011 permitted amortization of enhanced expenditure of pension liability on account of new pension option under 9^th BPS and amendment of Payment of Gratuity Act 1972 to banks, at the request of IBA  vide your guidelines on Prudential Regulatory Treatment.

 Please note as per 9^th BPS one more option of pension to existing employees  was given and the liability of Rs 4200 cr was  to be borne by the banks. 1/5th of Rs 4200 crs i.e. Rs 840 cr was to be charged in Profit and Loss in 2010-11 and remaining Rs3360  cr was to be charged to Profit & loss in remaining 4 years

     Against Rs 4200 crs the banks have amortized Rs 19611 cr as per table given below:

Complete data is based on published result  as on 31.03.2011 is given below: