What changed
RBI permitted RRBs to spread the additional gratuity liability from the 2010 Act amendment over five years instead of charging it fully in FY2010-11. The unamortised portion must exclude amounts for separated or retired employees. Disclosures in 'Notes to Accounts' are required.
What it means for you
This gives RRBs breathing room to manage the lump-sum gratuity expense without a severe dent to FY2010-11 profits. Banks must still recognise the liability fully but can smooth the P&L impact over five years. The exclusion of separated/retired employees ensures only active staff costs are deferred.
What you must do
- Recognise the full additional gratuity liability from the Act amendment in FY2010-11 books.
- If not fully charged, amortise the expense over five years starting FY2010-11, with at least 1/5th each year.
- Ensure unamortised amounts exclude any liability for separated or retired employees.
- Disclose the amortisation policy clearly in the 'Notes to Accounts' of financial statements.
- Acknowledge receipt of this circular to your regional RBI office.
Who it affects
All Regional Rural Banks (RRBs), RRB finance and accounts departments, RRB auditors and compliance teams
Can we charge the entire gratuity expense in one year if we prefer?
Yes, the circular allows full charging in FY2010-11, but if that is difficult, you may opt for the five-year amortisation.
Does the amortisation apply to gratuity for retired employees?
No, the unamortised carried-forward amount must not include any liability for separated or retired employees.
What disclosures are needed in the financial statements?
You must disclose the accounting policy for amortisation of the enhanced gratuity expenditure in the 'Notes to Accounts'.