Banks want more time to provide for additional pension liability

Public sector banks will soon seek approval from the Reserve Bank of India (RBI) to spread the additional liability of family pension over five years. The added liability comes after the government removed the pension cap of ₹9,284 per family. When pension liabilities are calculated by actuaries for the next 10-15 years, the entire amount has to be provided for in one go, HT Mint reported quoting unnamed persons. State-owned banks want more time to earmark the additional outgo as they have just returned to profitability, the publication said.

Banks in talks to know quantum of provisions

Liabilities on account of pension are usually calculated for about 15 years to ensure that pensioners are not impacted if problems arise with the institution at a later date.

“The only way to provide for this additional liability in tranches is if we have special permission from the regulator. When pension outgo increases, the additional monthly outgo is not very significant, but because it has to be set aside for a period of 10-15 years, it is a sizeable sum of money,” the publication quoted the person as saying.

Banks had earlier demanded the removal of the cap on family pension as the amount was paltry. They are in talks to know the quantum of provisions that need to be set aside for pension liability.

Debasish Panda, secretary in the Department of Financial Services, a few days ago had said that pension payouts to bank employees could increase to Rs 30,000-35,000 from the earlier cap of Rs 9,284. The contribution for employee pensions under NPS has also been hiked to 14% from 10% earlier.