Current · Source: Reserve Bank of India · RBI/2010-11/527 · issued 16 May 2011 · ~1 min read
Quick answerRBI allows RRBs to amortise the extra gratuity cost from the Payment of Gratuity Act amendment over five years, starting FY2010-11, with a minimum 1/5th charge each year, easing the one-year P&L hit.
The rule, in the simplest words
RRBs (Regional Rural Banks) can spread the extra cost of higher gratuity (a lump-sum payment to employees when they leave) over 5 years, instead of paying it all in one year.
Each year, you must charge at least 1/5th (20%) of the total extra cost to your profit-and-loss (P&L) account.
The part of the cost you haven't yet charged (unamortised amount) must not include money for employees who have already left or retired.
You must explain this spreading-out (amortisation) rule clearly in the 'Notes to Accounts' of your financial reports.
How it plays out — a real example
A branch operations officer in Indore at an RRB is reviewing the bank's gratuity expense for FY2010-11. The bank's total extra gratuity cost from the new law is ₹10 lakh. Instead of taking a ₹10 lakh hit to profits that year, the officer spreads it over 5 years, charging ₹2 lakh each year. She also checks that the ₹8 lakh carried forward excludes any amount for employees who have already left the bank.
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
❓ Common questions
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'.
📜 Read the original circular — full text as issued by RBI
RBI/2010-11/527
RPCD.CO RRB.BC.No. 70 /03.05.33/2010-11
May 16, 2011
The Chairmen
All Regional Rural Banks (RRBs)
Dear Sir,
Enhancement in gratuity limits - Prudential Regulatory Treatment
Consequent upon the enhancement in gratuity limits following the amendment to Payment of Gratuity Act 1972, RRBs have approached us for the amortisation of the enhanced expenditure resulting therefrom.
2. The additional liability on account of enhancement in gratuity limits should be fully recognised and charged to Profit and Loss Account for the financial year 2010-11.
3. However, RRBs have expressed that it would be difficult for them to absorb the large amount involved in a single year. We have examined the issue from a regulatory perspective and it has been decided that RRBs may take the following course of action in the matter:
The expenditure, as indicated in paragraph 2 above, may, if not fully charged to the Profit and Loss Account during the financial year 2010-11, be amortised over a period of five years {subject to (b) below} beginning with the financial year ending March 31, 2011 subject to a minimum of 1/5th of the total amount involved every year.
The unamortised expenditure carried forward as aforementioned shall not include any amounts relating to separated/retired employees.
4. Appropriate disclosures of the accounting policy followed in this regard may be made in the 'Notes to Accounts' to the financial statements.
5. Please acknowledge receipt of this circular to our Regional Office concerned.
Yours faithfully
(C.D.Srinivasan)
Chief General Manager
Encls: As above
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2010-11/527 · issued 16 May 2011. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are a Compliance officer at a bank this circular applies to (All Regional Rural Banks (RRBs), RRB finance and accounts departments, RRB auditors and compliance teams), your first concrete step on “Gratuity Limit Hike: Amortisation for RRBs” is: “Recognise the full additional gratuity liability from the Act amendment in FY2010-11 books.” (RBI issued this 16 May 2011).
Circular: RBI/2010-11/527 -- Gratuity Limit Hike: Amortisation for RRBs
Issued: 16 May 2011
Action required: Recognise the full additional gratuity liability from the Act amendment in FY2010-11 books.
Action required: If not fully charged, amortise the expense over five years starting FY2010-11, with at least 1/5th each year.
Action required: Ensure unamortised amounts exclude any liability for separated or retired employees.
Action required: Disclose the amortisation policy clearly in the 'Notes to Accounts' of financial statements.
Action required: Acknowledge receipt of this circular to your regional RBI office.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
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BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=6409&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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