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Pension to RRB employees Updates - 5

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The mindset of Govt on the pension to RRB employees and officers came to light with the effort of AIRRBEA . Let us salute to RTI Act!  It is positive to note that Govt is of the opinion to extend the pension scheme on par with the commercial Banks. At the same time, the parameters advised by govt for the eligibility of a RRB to extend the pension scheme is against the court judgments and  should be severely opposed.  AIRRBEA is with us!   We will march on...!!    We will win!!!


Copy of the Original  official note can be downloaded from Here

The official note prepared by govt for formulating the policy for pension for RRB employees is reproduced here.

F.No 8/20/2010-RRB

Sub: Pension to the employees of RRBs at par with employees of Nationalised Banks


In this file, the matter of granting pension to RRB employees on par with that of employees of nationalized banks is being dealt with.


2. Notes on pages 67/N to 76/N may kindly be recalled in this regard.


3. Employees of the RRBs are governed under the Employees Provident Fund and Misc. Provisions Act 1952 and the Employees Pension Scheme 1995 formulated there under. The Act lays down an upper limit of Rs. 6,500/- for contribution by employees to provident fund on the basis of which the pension amount is decided. in the Nationalised Banks, pension scheme was introduced in 1993. Employees of the RRBs have been demanding parity in the matter of pension with the Nationalised Banks for a long time.


4. It has been estimated that the grant of pension to the employees of RRBs, at par with the Nationalised Banks, would involve creation of a corpus of about Rs. 7,000 Crore. The corpus has to be funded either by the RRBs from out of their profits or by additional contribution by the shareholders, in the case of RRBs, the Central Government, the Sponsor bank and the State Government concerned.


5. The Government had in 2009-10 introduced the scheme of recapitalisation of 40 week RRBs to bring their CRAR to 9%. This required the State Government to share 15% of the total amount of Rs. 2200 crore. In two years, the State Governments have released only Rs.140.69 Crore. The Government has recently extended the scheme by another 2 years. In view of the above expecting the State Governments to contribute to the creation of pension corpus would be unrealistic. Besides, in case the RRBs are to grant better pension to their employees, the additional financial liability must be met by the RRBs through better profitability. More over as different RRBs'are at different levels of performance, the feasibility of introduction of pension at par with nationalized banks in all RRBS need to be considered.


6. Feasibility of RRBs being able to provide the resources for the pension fund has been examined by a Group comprising of senior officers of NABARD, foru major Sponsor Banks and the chairman of two RRBs.


7. As per the assesment of the Group, number of RRBs is in a position to provide the entire …. …..(not clear) of amortizing the amount over a period of 5-8 years was also examined. It may be mentioned here that in case of PSBs the pension fund was amortized over 5 years. It was felt that given the current state of profitability of RRBs and the period of peak retirement of RRB employees (2013-2020), amortizing the fund over 8 years is a feasible option.


8. RRBs wise assessment based on the audited results for 2010-11 (latest available) with amortized installments for eight years with the assumption that the entire profit would be utilized for the creation of pension corpus was as under:

i. The profitability of 48 RRBs as on 31/3/2011 could support absorption of the amortized installment. These RRBs have no accumulated loss.
ii. 6 more RRBs could support absorption of the amortized installment. They, however, carry accumulated loss.
iii. 16 of the above mentioned 54 (48+6) RRBs will, however, face severe stress on their CRAR and would need to make consorted efforts to improve profitability and CRAR.
iv. The profitability of remaining 28 RRBs cannot absorb the funding requirement even after amortizing over 8 years. Their aggregate deficit amounts to Rs. 2038 crore.


9. The above findings were with the assumption that the entire profit of the RRBs would be used for the funding of pension fund and that the employees of the RRBs would also contribute 30% of the pension corpus as in the case of employees of the Nationalized Banks.


10. The Group examined the two alternatives to meet the deficit of 28 RRBs:
(a) The shareholders contribute to the extent of their deficit in proportion to their shareholding.
(b) The contribution of employees of all RRBs can be pooled together and the consolidated amount is used to bridge the gap in pension fund. It was assessed that the pooled amount would be sufficient to meet the pension funding gap in all RRBs.


11. As stated above at para 5/N, the matter would not only require consultations with the Sponsor Banks and the State Governments, it is unlikely that the State Governments will agree to the proposal. Any contribution by Sponsor Banks would also reflect in the liability of the Central Government as the Sponsor banks (most them are public sector banks) wouId require capitalization support from Government...... (not clear)


12. RRBs are separate legal entities being set up under the Regional Rural Banks Act. Pooling of employees contribution as suggested under option 2 above is unlikely to be agreeable to the employees.


13. Therefore, feasibility of allowing pension in the RRBS will solely depend on the ability of the RRB concerned to meet the pension liability. Unless funding to the extent of Rs.2098 crore comes from the RRBs, pension at par with the nationalized banks cannot be introduced in all RRBs at once.


14. The Government has recently prescribed performance parameters for the RRBs and tripartite MOUs are being signed with the RRB, Sponsor bank and the Government of India laying down the performance and productivity parameters to be achieved. The number of loss making RRBs has come down to 4 from 7 in the last year. The net profit of RRBs has increased by 3% in 2011-12 (unaudited figures) compared with 2010-11. It is important that the RRBs undertake the pension liability only when their performance can sustain the additional liability.


15. It is proposed that the RRBs could be allowed to adopt pension at par with Nationalized Banks under the following framework:
i. Only profit making RRBs with no accumulated losses would be able to adopt new pension scheme;
ii. Employees of the RRBs would contribute 30% of the corpus of pension fund in the respective RRBs. This would be the actual funding requirement and not the notional funding requirement;
iii The remaining 70% of the corpus of pension fund will be contributed by the concerned RRBs from their profit;
iv. Since RRBs also need to build their capital for enhanced operations and growth, only a maximum of 25% of the net annual profit shall be contributed by the concerned RRBs towards corpus of the pension fund;
v. RRBs with accumulated losses would be required to wipe off the accumulated losses before introducing the pension scheme and should be able to fund the pension liability over the next 8 years with profit amounts;
vi. The effective date for introduction of the Pension Scheme could be l.4.2012. However, banks would be allowed to introduce this Scheme only when their financial position allows absorption of the resultant pension liability;
vii. Model Pension Sbheme ano regulations for introducing pension in RRBs at par with nationalized banks would be framed in consultation with NABARD;
viii. The Model Scheme and Regulations will be forwarded to RRBS for adoption with approval of their respective Boards, ano prior approval of Government of India.


16. With the above methodology, it is estimated that 24 RRBs, (with profit as on 31st March, 2011) would be able to introduce pension immediately. This would be an incentive for other RRBs to improve their performance and profitability and introduce pension scheme. The RRBs have already been assigned targets for next 4 years under the operational parameters including per employee profitability. Other RRBs would be able to adopt the pension scheme as per their financial position and performance, as stated above. The actual date of introduction of pension scheme may be the 1st of April of the year from which their financial position allows them to introduce pension.


17.Submitted for in-principle decision on the above, after which the matter would be referred to NABARD to formulate a Model Pension Scheme and regulations for introducing pension in RRBs at par with nationalized banks.

(Suresh.G.Arya)
SRO - RRB
25.06.2012







Copy of the Original  official note can be downloaded from Here

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