Banks told to beef up wage hike, pension provisioning

RBI move comes as next wage revision will kick in from November

The decision on increase in wages and pensions in the public sector banking industry is more than a year away, but the banking regulator has already asked banks to start making adequate provisioning.

This is because banks will have to pay arrears from November, 2012 even though the Indian Banks Association has informed banks that an agreement with unions on wage revision will be reached by March, 2014.

The Reserve Bank of India (RBI) told bankers at the post-monetary policy meeting that central bank will take a “very serious view” if banks are found making lower provisioning during the annual financial inspection report.

RBI’s next round of annual inspection report will start from April 2013, in which the wage and pension provision figures will be examined.

The last wage revision for 8,00,000 bank employees (7,00,000 from public sector banks and 100,000 from old private sector banks) was effective till October 31, 2012; so any new agreement will have to effective from November 1 and banks will have to pay arrears.

The additional burden on banks during the ninth bipartite agreement was Rs 4,816 crore for wage revision on account for a 17.5% wage hike and Rs 5,000 crore for pension.

The provisioning for the next round of wage hike will reflect in banks’ balance sheet when they finalize the fourth quarter results.

RBI has said banks should start making provisioning from the current quarter (January-March) in order to even out the burden. The regulator’s message also comes in the background of the country’s largest lender, the State Bank of India (SBI), deferring the pension provisioning requirement of the ninth bipartite agreement. SBI finally had to make a provision of close to Rs 8,000 crore from its capital reserves in the January-March quarter of 2010-11.

This had depleted the capital adequacy ratio of the bank. Banks are not allowed to make provision from capital reserves, without taking prior approval from RBI.

According to bankers who attended the meeting, the central bank has also asked banks to have some uniformity in the parameters while deciding on the provisioning requirement.

“Parameters like discount rate, wage escalation, and return on investment should not vary widely among banks,” a banker said. “In case, banks fail to take a decision on a uniformity, RBI will manadate the requirements,” he added.