Banks and employee unions have finalised the 10th bipartite settlement at a 15% increase versus a 17.5% increase in the last negotiation in 2010.
A 15% salary hike is on expected lines with most banks providing for a 12-17% increase. SBI, PNB, and BoB have provided for the 15% increase while Union Bank and bank of India have provided for 12-13% and this will likely lead to a small hit of 3-4% of their FY15 PBT (based on their current run-rate of provisioning).
The good part is that this time, PSU banks are well provided unlike last time when employee expenses spiked 50% in FY11 after negotiations.
The only caveat is that the pension impact of wage hike is not easy to compute and could likely lead to some negative surprise.
The agreed wage hike will be payable from Nov-12. A 15% hike has been agreed upon vs 17.5% in the last negotiation. The hike is on expected lines as most of the banks we track have been providing assuming a hike of 12-17%. Last time most banks were under provided and that led to a 50% increase in employee costs in FY11. We do not expect such negatives surprise this time.
The only caveat is that pension impact of wage hike is difficult to estimate and can likely lead to negative surprise. While most banks have indicated that they have also provided for the pension impact of wage hike, the quantum of that provisioning is difficult to ascertain and hence can lead to variations between final pension impact and provisions made.
By Nomura