Finance minister Nirmala Sitharaman has sounded off banks to do more for employees who retired earlier so they are not discriminated against in terms of pension. The government has also asked banks to review the family pension scheme so that the pension for the spouse is the same as the government.
The family pension scheme is likely to be announced on Wednesday when the Indian Banks’ Association (IBA) is set to unveil the 11th bipartite wage settlement. This has been due since November 2017 and, although the memorandum of understanding was signed in July, the deal took time to finalise. Banks currently have a family pension scheme, but it is a truncated version of what is available for other government employees (see graphic).
An updation of the pension scheme is seen as necessary because a bank employee who retired in the 1990s gets a fraction of the pension that a recently retired employee draws. This is because the pension is linked to the last drawn basic salary, which was capped at Rs 10,000 in the 1990s. To remove this difference, banks will need to update their pension scheme. Employees who retired between 1986 and 2010 are eligible for a defined benefit pension. Banks have done some rough calculations based on an actuarial valuation of pension liabilities done in 2018.
Although the annual outgo is not very high, there will be an upfront cost to revamping the family pension scheme. Banks are required to maintain funds to meet future pension liability and this provision requirement keeps going up as interest rates fall and life expectancy increases without any change to the pension scheme. So, an increase in future liabilities could result in a sharp one-time increase in provisioning.
Sitharaman sounded off banks on the need to treat pensioners fairly during her interaction with them at the IBA’s 73rd annual general meeting on Tuesday. The annual meet was attended by bank chiefs, including IBA chairman Rajkiran Rai. Bankers are understood to have said that the health of the industry was better than expected. . In the meeting, Sitharaman appreciated the work done by bankers during the Covid pandemic and acknowledged the role of every banker and business correspondent.
She called upon banks to ensure that no Indian is left behind and that every underprivileged citizen has an Aadhaar-linked bank account where they can receive government benefits. The finance minister also urged banks to make available digital banking services to all Indians and urged the lenders to issue RuPay cards and try to see that every Indian has one. Addressing the amalgamated banks, Sitharaman said that the country needs six to seven large banks with the size of State Bank of India to meet the needs of large borrowers.
At the same time, there was room for medium and small banks and non-banking finance companies and it was up to the lenders to differentiate their products, she said.