State Bank of India, which saw a sharp 35 per cent fall in its December quarter net profit due to a one-time expenditure towards increased salaries and pensions, said the burden will jump to around ₹26,000 crore by March this year.

The largest lender on Saturday reported a steep decline of 35 per cent in its net income at ₹9,164 crore during October-December 2023 compared to ₹14,205 crore profit recorded in the corresponding period a year ago and ₹14,330 crore earned in the preceding quarter.

The public sector lender attributed the fall in profit to the additional provision of ₹7,100 crore made in the reporting quarter towards salaries and pensions arising out of the 17 per cent wage hike settlement reached with employee unions in November last year. The revises wages are effective from November 2022.

Explaining the impact of the wage hike settlement, Chairman Dinesh Kumar Khara said, "Of the ₹7,100 crore total provisions made in the December quarter, ₹5,400 crore is towards pensions, because there were some anomalies in the way our pensions were calculated. Since 2022, some of our employees were getting 40 per cent and some were getting 50 per cent of their last drawn salary as pension and the matter has been sub-judice since then.

"Now there is legal clarity, we thought of clearing this at a go with this ₹5,400 crore allocation. Following the recent court order, we have decided to pay every one of our 1.8 lakh pensioners at 50 per cent. This allocation takes care of the entire backlog till December 2023," he told reporters.

That means, the wage hike impact will shave as much as ₹25,990 crore off the bank's profit by the end of March, as the bank has already provisioned ₹13,400 crore till September 2023 and an additional ₹7,100 crore in the December quarter. Also, it will have to set aside ₹5,490 crore more in the March quarter, totalling to ₹25,990 crore. And most of the outgo is towards pensions.

Khara further said, in fact, the bank has been setting aside 10 per cent each year towards salary and pension arrears so far and this adds up to ₹13,400 crore till December 2023.

“Now, we will have to set aside ₹5,490 crore more for the March quarter. With that it will be business as usual,” he added.

The Chairman further said ₹1,700 crore of the ₹7,100 crore has been provisioned towards neutralising the dearness allowance arrears, also necessitated after the wage hike settlement.

He said this ₹1,700 crore for the pension corpus will be implemented once the Government notifies it through gazette and the Reserve Bank of India approves it. “Though both are pending, we decided to set aside the entire quantum in the December quarter itself,” he added.

Salaries and other benefits of the employees of State-owned banks along with some of the oldest foreign banks like Standard Chartered Bank and HSBC, and old-generation private sector lenders like HDFC, ICICI, Federal Bank, among others, are decided by the industry lobby IBA under a wage settlement that has a five-year tenure.

Accordingly, the latest wage hike of 17 per cent, up from 14 per cent in the previous settlement, came into effect from November 1, 2022, and was announced in early December 2023. The IBA had said the impact on public sector lenders will be close ₹13,000 crore for salaries.

The revision will benefit over 9 lakh employees and officers. Of the total, 3.8 lakh are with state-owned banks and over 2 lakh with the SBI. The adjustment is set to take effect from November 1, 2022, and will span up to five years.

To calculate the new pay scales, the dearness allowance corresponding to 8,088 points will be merged with the basic pay as of October 31, 2022. Additionally, a loading of 3 per cent will be added, totalling ₹1,795 crore.

The distribution of the annual wage hike between workers and officers will be determined separately based on the break-up of establishment expenses for the fiscal year 2021-22.

While the demand for pension updating for all retirees is still under discussion, it has been agreed that a one-time ex-gratia amount will be considered along with the pension for pensioners and family pensioners as of October 31, 2022.