RBI permits banks to amortise Family Pension enhancement over the next 5 years

RBI on Monday said that the expenditure towards enhancement in family pension of employees of banks if not fully charged to the Profit and Loss Account during the financial year 2021-22, be amortised over a period not exceeding five years.

According to the RBI notification dated October 4, IBA has approached the regulator for the amortisation of the increased expenditure resulting from the revision in family pension for employees of its member banks covered under the 11th Bipartite Settlement and Joint Note dated November 11, 2020.

As per the norms, the additional liability on account of revision in family pension is supposed to be fully recognised and charged to the Profit and Loss Account in the current financial year.  In this regard, IBA has conveyed that it would be difficult for some banks to absorb the large amount involved in a single year. Therefore, the issues from a regulatory perspective examined by the Central Bank and it were decided by them as an exceptional case, it said. Accordingly, banks covered by the aforementioned settlement were asked to take the course of action in the matter, as under.

a. The liability for enhancement of family pension shall be fully recognised as per applicable accounting standards.

b. The expenditure, towards payment of enhancing pension may if not fully charged to the Profit and Loss Account during the financial year 2021-22, be amortised over a period not exceeding five years beginning with the financial year ending March 31, 2022, provided aa minimum of 1/5th of the total amount involved being expensed every year.

c. Appropriate disclosures of the accounting policy followed in this regard shall be made in the ‘Notes to Accounts’ to the financial statements. The Notes to Accounts shall also disclose the amount of unamortised expenditure and the consequential net profit if the unamortised expenditure had been fully recognised in the Profit & Loss Account.

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