What changed
RBI has permitted banks covered by the 11th Bipartite Settlement and Joint Note of November 11, 2020, to spread the additional expenditure from enhanced family pension over a maximum of five years, instead of charging it fully in FY2021-22. The liability must still be fully recognised as per accounting standards, and unamortised amounts must be disclosed in notes to accounts.
What it means for you
This gives banks breathing room to manage the large one-time hit from pension revision, smoothing the impact on profitability over five years. However, the full liability is recognised upfront, so net worth and capital ratios are affected immediately. Banks must ensure transparent disclosure of the unamortised portion and its effect on net profit.
What you must do
- Recognise the full family pension enhancement liability as per applicable accounting standards in FY2021-22.
- If not fully expensed, amortise the expenditure over a period not exceeding five years, expensing at least 1/5th annually from FY2021-22.
- Disclose the accounting policy, unamortised expenditure amount, and the net profit impact if fully expensed in the 'Notes to Accounts'.
- Update internal financial reporting to track amortisation schedule and ensure compliance with RBI Directions.
Who it affects
All member banks of IBA covered under the 11th Bipartite Settlement, Bank finance and accounting teams, Bank auditors and compliance officers
Can we skip recognising the full liability in FY2021-22?
No, the full liability must be recognised as per accounting standards. Only the expense recognition in the Profit and Loss Account can be amortised over up to five years.
What if we want to expense more than 1/5th in a year?
You can expense more than the minimum 1/5th annually; the rule sets a floor, not a ceiling. The total amortisation period cannot exceed five years.
Does this apply to all banks or only those under the 11th Bipartite Settlement?
It applies only to banks covered under the 11th Bipartite Settlement and Joint Note dated November 11, 2020, as specified in the circular.