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Family Pension Hike: Amortisation Allowed Over 5 Years

Current · Source: Reserve Bank of India · RBI/2021-22/105 · issued 04 Oct 2021 · ~2 min read
Quick answerRBI allows banks under the 11th Bipartite Settlement to amortise the additional family pension liability over up to 5 years, starting FY2021-22, with a minimum 1/5th expense each year. Full recognition is required; amortisation is an exceptional relief.
The rule, in the simplest words
How it plays out — a real example

A branch operations officer in Indore, Priya, sees her bank's finance team use this rule. They spread the big one-time cost of higher family pensions over 5 years, so the bank's profit doesn't drop too much in one year. Priya knows the bank still records the full cost as a liability, but the gradual expense helps keep the bank's earnings steady.

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

Who it affects

All member banks of IBA covered under the 11th Bipartite Settlement, Bank finance and accounting teams, Bank auditors and compliance officers

❓ Common questions

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.

📜 Read the original circular — full text as issued by RBI
RBI/2021-22/105 DOR.ACC.REC.57/21.04.018/2021-22 October 4, 2021 All Member Banks of the Indian Banks’ Association covered under the 11th Bipartite Settlement and Joint Note dated November 11, 2020 Madam / Sir, Enhancement in family pension of employees of banks - Treatment of additional liability The Indian Banks’ Association (IBA) has approached us 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. 2. The additional liability on account of revision in family pension consequent to the aforementioned settlement should be fully recognised and charged to the Profit and Loss Account in the current financial year. However, IBA has expressed that it would be difficult for some banks to absorb the large amount involved in a single year. 3. We have examined the issues from a regulatory perspective, and as an exceptional case, it has been decided that banks covered by the aforementioned settlement may take the following course of action in the matter: a. The liability for enhancement of family pension shall be fully recognised as per applicable accounting standards. b. The expenditure, as indicated in paragraph 2 above, 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, subject to a 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. 4. The Reserve Bank of India (Financial Statements - Presentation and Disclosures) Directions, 2021 shall be accordingly updated. Yours faithfully, (Neeraj Nigam) Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2021-22/105 · issued 04 Oct 2021. The plain-English explanation above is BankPulse’s own independent summary.
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Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (All member banks of IBA covered under the 11th Bipartite Settlement, Bank finance and accounting teams, Bank auditors and compliance officers), your first concrete step on “Family Pension Hike: Amortisation Allowed Over 5 Years” is: “Recognise the full family pension enhancement liability as per applicable accounting standards in FY2021-22.” (RBI issued this 04 Oct 2021).

  1. Circular: RBI/2021-22/105 -- Family Pension Hike: Amortisation Allowed Over 5 Years
  2. Issued: 04 Oct 2021
  3. Action required: Recognise the full family pension enhancement liability as per applicable accounting standards in FY2021-22.
  4. Action required: If not fully expensed, amortise the expenditure over a period not exceeding five years, expensing at least 1/5th annually from FY2021-22.
  5. Action required: Disclose the accounting policy, unamortised expenditure amount, and the net profit impact if fully expensed in the 'Notes to Accounts'.
  6. Action required: Update internal financial reporting to track amortisation schedule and ensure compliance with RBI Directions.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. 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.

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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=12172&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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