PSBs to make additional provision of over ₹21,300 cr for higher family pension, NPS

Special dispensation will be sought from the RBI to allow provisions over next 5 years

Public sector banks will have to make an additional provision of over ₹21,300 crore annually on account of revision of norms to calculate family pension and higher contribution toward National Pension System (NPS).

“Keeping in view the requirements of the Accounting Standard (AS15R) issued by the Chartered Accountants of India and also as per the Companies Accounting Rules (2006), the incremental provision towards the Family pension as per the actuarial estimate is ₹20,302.9 crore,” a note prepared for the proposal, seen by BusinessLine, said.

The note also mentioned that special dispensation will be sought from the Reserve Bank of India (RBI) to allow provisions over next five years to avoid any immediate adverse impact on the balance sheets of the banks.

On Wednesday, Financial Services Secretary Debashish Panda said the government has approved the Indian Banks’ Association’s (IBA) proposal to increase the family pension to 30 per cent of last salary drawn. In continuation of the 11th bi-partite settlement on wage revision of public sector bank employees, which was signed by the IBA with the unions on November 11 last year, there was a proposal for enhancement of family pension and also the employers’ contribution under the NPS.

According to Panda, the scheme, earlier, had slabs of 15, 20 and 30 per cent of the pay that a pensioner drew at that point of time. It was capped subject to a maximum of ₹9,284. “That was a very paltry sum and Finance Minister Nirmala Sitharaman was concerned and wanted that to be revised so that family members of bank employees get a decent amount to survive and sustain,” he said.

As on March 31, the total number of pensioners stood at around 5.66 lakh and family pensioners at over 1.55 lakh.

 

National Pension System

The system prescribes contributory pension system where originally it was decided that employees will contribute 10 per cent of their basic plus dearness allowance while a matching amount will be provided by the government employer. On December 10, 2018, it was decided that for a Central government employee, the mandatory contribution by the employer would be raised to 14 per cent from April 1, 2019. The same mechanism will now be valid for employees of public sector banks.

“Based on the feedbacks received from the banks, the additional cost on account of increased contribution will be of the order of ₹1,080 crore per annum for all the PSBs,” the note mentioned above said. This will have an impact on nearly 60 per cent (around 4.68 lakh) bank employees out of a total strength of over 7.79 lakh.

Higher payout by the employer would translate into an increase in the accumulated corpus of employees covered under NPS. This will result in greater pension payouts after retirement without any additional burden on the employee. As on date, an employee can withdraw 60 per cent of total corpus for which she/he does not have to pay any tax, while the remaining 40 per cent of the amount utilised for purchasing an annuity from the Annuity Service Provider, registered and regulated by the Insurance Regulatory and Development Authority of India (IRDAI) and empanelled by the Pension Fund Regulatory and Development Authority (PFRDA), is also tax exempt.