Bankers Dearness Allowance calculation explained

[This article discusses the meaning of consumer price index; the formula used for linking the conversion Factor Base 2001=100 to Base 1960=100 and method of arriving eligible rate of DA].

Dearness Allowance (DA) is a cost of living allowance paid to Government employees Public sector employees (PSU) and their pensioners to mitigate the impact of inflation on them. This allowance is calculated on the basis of increase or decrease in All India Consumer Price Index for Industrial Workers (CPI-IW). The Consumer Price Index is the estimation of price changes in a representative basket of goods and services, during a period which is pegged into index numbers.

DA calculation formula:

The Government of India, Ministry of Labour and Employment, (Labour Bureau), releases Consumer Price Index at Base year 2001=100 for Industrial Workers (CPI-IW), on the last day of every month.  (Example: On 31^st July the CPI of June will be announced). Banks are using the same series of consumer price index; linking the conversion Factor Base (year) 2001=100 to Base 1960=100 (Conversion factor from  the year 2001 to the year 1960 is ‘index no ×4.63×4.93’).

For example; CPI-IW announced by Labour Bureau for Jan 2016, Feb 2016, March 2016 is respectively 269,267, and 268.  The above points are converted to base 1960=100 through the following conversion factors.

In terms of X BPS/Joint Notes, 4440 points of DA was merged with the ‘pay’ and DA rate was fixed at 0.10% per DA slab.

Hence, the revised CPI numbers after merger of 4440 points with basic salary;

Therefore, the average CPI for the Quarter (Jan 2016 to March 2016) is 1677 i.e. (1700+1654+1677÷ 3=1677)

For converting above points into slabs, we have to divide 1677 by 4 which is equal to 419 slabs. The DA rate is @ 0.10% per slab as decided in the X BPS.

So, DA percentage on 419 slabs@ 0.10%= 419 × 0.10% = 41.90 %

Thus, the bank employees/officers received DA @ 41.90% on their ‘pay’ for the period of May ‘16 to July ’16

Note: ‘Pay’ includes allowances eligible for DA. While determining DA payable on ‘pay’, decimals from third place may be ignored.