Pension hike for PSB chairmen, EDs being looked into

The finance ministry and the law ministry are examining a proposal to increase the pensions of public sector bank chairmen and executive directors.

The Indian Banks' Association (IBA) have made a proposal to the finance ministry to take into consideration the years that a bank executive serves as a wholetime director i.e., as a chairman and managing director (CMD) and executive director (ED) when calculating the pension amount, said banking sources.

"It is a matter of interpretation. Their continuation of service should be taken into consideration when calculating pension," said H N Sinor, chief executive, IBA

As it stands today pension is calculated based on the service peiod till one attains the level of general manager. This means one's years as an ED or CMD are thus overlooked.

This is because the posts of ED and CMD are appointed by the Government of India and are non-pensionable posts being of a contractual nature. So when a general manager is promoted, he is deemed as being retired and thus starts getting a pension.

IBA has proposed that the number of years of service should be increased by five years and the pension should be calculated based on the same, said sources.

The proposal if accepted will be with retrospective effect and will need Reserve Bank of India's concurrence. Necessary modification will thus be made in the banks' employees pension regulations.

By increasing the number of years by five in terms of service put in by the general manager, this would mean an additional monthly pension of Rs 1,000-2,000.

Take the example of a general manager with 25 years of service, he will get a pension of Rs 13,087 (pension plus dearness allowance) when he retires.

The pension is calculated on a pro-rata basis at 50 per cent of the salary. If in the calculation of the pension amount, the general manager's service is extended by five years, he will get a higher pension of Rs 14,704 (pension plus dearness allowance).

Meanwhile, IBA is working at aligning the salaries of heads of public sector banks on par with market salaries. The Reserve Bank of India is also in favour of modifying the salary package of PSU chiefs, said Sinor. He was speaking on sidelines of a one-day seminar on Balanced Scorecard, conducted by IBA.

Currently, a PSU bank chairman gets only 5 to 10 per cent of the cash component compared to a private bank managing director, said sources. For instance an MD from a leading private bank earns around Rs 8-10 lakhs a month while a PSU bank chairman will earn a mere Rs 35,000 to 45,000.