What changed
Previously, RRBs could amortise pension liability from the 2018 scheme over 5 years from FY19. Now, with the scheme effective from November 1, 1993, RBI permits amortisation of the resulting additional liability over up to 5 years starting FY25, subject to a minimum 20% annual expense.
What it means for you
RRBs get relief from a one-time hit to profits by spreading the retrospective pension cost. The unamortised portion not reducing Tier 1 capital helps maintain capital ratios. Banks must disclose the accounting policy and the impact on net profit if fully expensed.
What you must do
- Recognise full pension liability as per accounting standards immediately.
- Amortise the additional expenditure over max 5 years from FY25, expensing at least 20% each year.
- Disclose the accounting policy and unamortised amount in Notes to Accounts.
- Show the consequential net profit impact if the expenditure were fully recognised.
- Ensure unamortised pension expenditure is not deducted from Tier 1 capital.
Who it affects
All Regional Rural Banks (RRBs), RRB finance and compliance teams, Auditors of RRBs
Can RRBs expense less than 20% of the pension liability in any year?
No, the circular mandates a minimum of 20% of the total pension liability must be expensed each year during the amortisation period.
Does the unamortised pension expenditure affect capital adequacy?
No, the circular explicitly states that pension-related unamortised expenditure will not be reduced from Tier 1 Capital of RRBs.