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The Reserve Bank of India has given banks a breather on prudential regulatory treatment of new pension option to employees of public sector banks and enhancement in gratuity limits.
Banks can amortise over five years the additional liability on account of re-opening of pension option for existing employees who had not opted for pension earlier as well as the enhancement in gratuity limits beginning with the financial year ending March 31, 2011 subject to a minimum of 1/5th of the total amount involved every year.
Capital adequacy ratio
Further, the unamortised expenditure would not be reduced from Tier-I capital. Bankers say that but for this benign regulatory treatment their capital adequacy ratio would have come down to the tune of the unamortised expenditure.
However, the amortisation benefit will not be available to those banks who have fully charged to the Profit and Loss Account during the financial year 2010-11.
The central bank's breather to banks comes in the wake of the latter expressing difficulty in absorbing in a single year the large amount of expenditure relating to new pension option to employees of public sector banks and enhancement in gratuity limits.
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