IOB allows VRS optees to encash bonds

Atmadip Ray

Mumbai, Dec 10: In what is becoming a trend of sorts, the management of the Chennai-based Indian Overseas Bank (IOB) has decided to allow its voluntary retirement scheme (VRS) optees to encash the five-year bonds alloted to them under the scheme.

Earlier, the Mumbai-based Bank of India (BoI) had also removed the three-year “lock-in” period at its VRS-bond on request from its VRS optees.

The refunding scheme in IOB will remain open till December 31, this year. The decision has also been approved by the bank’s board and there would not be any penalty if optees were to exercise the refunding scheme. It has been gathered that bank has received representations from different quarters of its staffers, especially from the clerical and sub-staff levels, wanting to surrender the bond.

IOB chairman and managing director SC Gupta said “The decision would also help the bank to reduce its operating costs as interest rates in the economy has been coming down in a steady fashion.”
IOB’s five-year VRS-bonds carry an interest rate of 10 per cent while the current rate of interest for the same maturity period bonds is around seven per cent.

IOB had issued around Rs 129 crore of bonds to its VRS optees, which is 50 per cent of the ex-gratia amount received by the optees. The total cost on account of the VRS, based on the applications received and accepted up to end-March, had been determined at Rs 190.23 crore, which has been amortised equally over a period of five years beginning from the fiscal 2000-2001.

The bank had received a total of 3,992 applications for its VRS of which 2,283 were from officers; 1,441 from clerks with 268 from sub-staff.

The bank has so far accepted around 3,500 applications.BoI, the first bank to withdraw the three-year lock-in period on its five-year bonds offered to VRS optees, has however been charging a penalty of one per cent interest on the total amount if bond-holders are (read VRS optees) encash it before the maturity period.

BoI had issued around Rs 250 crore of bond to its VRS optees, which is 50 per cent of the ex-gratia amount received by the optees. The ex-gratia amount was pegged roughly at around Rs 500 crore. The total cost on account of the VRS was pegged at Rs 855.20 crore.
Banks offered options like an ex-gratia amount of 60 days salary for each completed year of service or salary for the number of months service ceased to be left, whichever is less.

They made an immediate payment of fifty per cent of the total amount, and the remaining was to be paid in five-year bonds.