Pension option to dent Indian Bank's finances

Indian Bank has estimated its liability would go up by Rs 1,000 crore, if the 50 per cent of employees, who earlier opted for provident fund (PF) scheme, opt for pension scheme. In April the Indian Banks’ Association (IBA) entered into a settlement with the worksmen union for giving employees who did not opt for pension earlier to join the scheme.

According to a senior official from the bank, which has around 19,000 employees, 50 per cent of them are under provident fund scheme and remaining under the pension scheme.

When the pension scheme was introduced in 1995, people opted for provident fund scheme, since the interest rates were high. As the rates started coming down, they wanted to migrate to the pension scheme.

“If they opt for the pension scheme, our liability will go up by Rs 1,000 crore, amortised in the next five years,” said Executive Director V Ramagopal said.

Nearly 320,000 public sector bank employees are about to get another opportunity to opt for a monthly pension, which they had silently craved for years. The group includes some 60,000-odd retired employees.

The United Forum of Bank Unions and the bank management’s association IBA have decided that retired bankers willing to switch over to the pension plan will have to surrender 56 per cent of the PF, plus the interest on it.

They have also mutually decided that existing bank employees would have to share 30 per cent of the additional pension burden, while banks would shoulder the balance. Additional pension burden on account of existing employees is pegged at Rs 6,000 crore. 

Clarification

In response to the report (“Pension option to dent Indian Bank’s finances”) published on August 26, Indian Bank has clarified that the quantum of liability that would accrue on account of another option for pension to the employees who had earlier opted for the Provident Fund Scheme shall only be available after it had received the options. This will depend on several factors, including the number of opted employees eligible, the amount of the bank’s contribution to PF returned by them and the interest thereon worked out. A statement in the report was wrongly attributed to the bank’s executive director, V Ramagopal. The error is regretted.