BoI drops lock-in period for bonds offered under VRS

Atmadip Ray

Mumbai, Aug 24: THE voluntary retirment scheme (VRS) optees of the Bank of India (BoI) have something to cheer. The bank has become the first state-run bank to withdraw the three-year lock-in period on its five-year bond offered to these employees as part of the VRS compensation package.

BoI had issued bonds worth around Rs 250 crore to its VRS-optees, which is 50 per cent of the ex-gratia amount offered to the optees. The ex-gratia amount was around Rs 500 crore. The total VRS cost was at Rs 855.2 crore.

BoI has decided to charge a one per cent penalty interest rate on the total amount if bond-holders (read VRS optees) withdraw it before the maturity period.

The interest rate on these bonds varied and was depended upon the time of release of a VRS optee and hovers nearer to 10 per cent. Those who opt for an early withdrawal will be paid an interest at par with the bank’s deposit rate for the tenure of the bond’s life till then. The bank, however, has decided to exempt bond-holders, who deposit the amount in the bank itself, from paying such penalty.

Said BoI general manager, NS Nayak: “We took this pro-active decision after reviewing the bank’s funds position, which is comfortable now. This decision is in line with the request made by the VRS-optees to withdraw the lock-in period.”

The bank is now in a comfortable position and had registered sizeable net profits. In the first quarter of this fiscal, BoI posted a net profit growth of 82.20 per cent to Rs 120.38 crore. During the fiscal 2000-2001, the bank registered net profit of Rs 251.88 crore, as against Rs 172.82 crore in the preceding fiscal.

BoI was one of the first state-run banks to offer VRS. Fifteen per cent of its staff had opted for the scheme. As on end-March, 7,458 staffers availed of the scheme.

The bank offered options such as ex-gratia amount of 60 days salary for each completed year of service or salary for the number of months service left, whichever was lower. It made an immediate payment of 50 per cent of the total ex-gratia amount, and the remaining was to be paid in five-year bonds.

Out of the total VRS cost, Rs 330.13 crore was written-off from the profit and loss account of 2000-2001.