Amortisation of additional pension liability
Amortisation of additional pension liability – Implementation of Pension Scheme in Regional Rural Banks with effect from November 1, 1993 – Prudential Regulatory Treatment
In terms of NABARD circular NB.DoS.Pol.HO/2533/J-1/2019-20 dated December 12, 2019, Regional Rural Banks (RRBs) were earlier permitted to amortise their pension liability on account of RRB (Employee) Pension Scheme 2018 over a period of five years, beginning with financial year ending March 31, 2019. RRBs are now required to implement the pension scheme with effect from November 1, 1993. However, in view of the difficulties expressed in absorbing the increased liability in a single year, it has been decided that RRBs may take the following course of action in the matter:
- The liability on account of applicability of pension scheme shall be fully recognised as per the applicable accounting standards.
- The expenditure, on account of revision in the pension, may, if not fully charged to the Profit and Loss Account during the financial year 2024-25, be amortised over a period not exceeding five years beginning with the financial year ending March 31, 2025, subject to a minimum of 20 per cent of the total pension liability involved being expensed every year.
- Appropriate disclosure of the accounting policy followed in this regard shall be made in the ‘Notes to Accounts’ to the financial statements. Banks 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.
- Pension related unamortised expenditure would not be reduced from Tier 1 Capital of the RRBs.
Applicability
2. This circular is applicable to all the RRBs with effect from financial year 2024-25.
3. The Reserve Bank of India (Financial Statements – Presentation and Disclosures) Directions, 2021 shall be updated suitably to reflect these changes.
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