Staff liabilities may bleed small PSBs

Written by Mahua Venkatesh | New Delhi, Feb 25 | Updated: Feb 26 2008, 06:30am hrs
Public sector banks will need to fully deploy an RBI escape clause in provisioning requirements for employee liabilities to ensure their costs do not soar by at least Rs 800 crore each this fiscal.

These banks are planning to introduce additional retirement benefits that could cost them up to Rs 25,000 crore. This is more than half their estimated gross profit for this fiscal at Rs 42,000 crore. The proposed package for employee benefits includes pension, provident fund and gratuity.

Banking sources said liabilities could vary from Rs 800 crore to Rs 1,000 crore for each bank, depending on employee strength. To make full provision for employee-related costs in a single shot in one year could push a large number of banks into the red.

They are, therefore, keen to use the breather provided by RBI on the accounting standards on employee benefits. The AS-15 norm allows them to spread the full provision for staff-related liability over five years.

One PSU bank CEO said that while State Bank of India and Canara Bank, which have net profits of Rs 4,541.31 crore and Rs 1,421 crore, respectively, could afford to make provisioning for employee-related costs in one shot without any major impact on their bottomlines, mid-sized banks like Oriental Bank of Commerce and Corporation Bank, with net profits of Rs 580 crore and Rs 536 crore, respectively, may need to space out the liabilities.

The cost for banks would soar by an additional Rs 5,000 crore in case the government decides to provide an option to all employees to move towards pension benefits in lieu of provident fund. Of the 7 lakh people employed by the 27 public sector banks, about 3 lakh are covered under provident fund.

Based on actuarial calculations, the Indian Banks Association (IBA) and bank unions may even decide to chalk out a feasibility plan to allow employees, currently covered under the PF net, to opt for pension benefits.

The total deposit base of PSU banks, as of March 2007, was Rs 19,50,845 crore, while advances were at Rs 13,77,652 crore. The total paid-up capital of PSU banks is estimated at Rs 11,691 crore.