Bank auditors to detail financial impact of pension & gratuity liability of PSBs

NEW DELHI: The accounting regulator has asked bank auditors to detail the financial impact of the pension and gratuity liability of public sector banks in their audit of 2010-11 accounts.

The move will provide clarity on the contingent liabilities of banks, which have risen sharply after the government hiked the gratuity limit and changed pension rules. The Reserve Bank of India (RBI) has allowed banks to adjust the liability over five years.

The accounting regulator has issued guidelines for treating these liabilities, but said the outgo needs to be quantified even if it is spread over five years. "Highlighting the overall impact will help in properly assessing the financial strength of a bank in the long-term," said an official at the Institute of Chartered Accountants of India (ICAI), requesting anonymity.

In May last year, the government amended the Gratuity Act to raise the limit on gratuity an employee would receive on retirement to 10 lakh from 3.5 lakh. It also re-opened the pension option for existing employees who had not opted for it earlier and had instead decided in favour of a lump sum on retirement.

State-run banks had estimated the outgo on pension to be around 4,000 crore and had sought relief from the RBI and the regulator saying the total outgo could be as high as 10,000 crore.

The RBI allowed banks to spread the financial impact of the total liability incurred in the previous fiscal over a period of five years. But the amortised amount could not be less than a fifth of the total liability.

The move has insulated the financials of banks from being impacted severely in the current fiscal. But the disclosure will give stakeholders clarity on the financial impact of the increase in gratuity benefits.

The I CAI has asked its member auditors to clearly disclose the financial impact of such liabilities had they been provided in the current year itself.

The matter was discussed at a recent meeting of the governing council of the ICAI, which then circulated a detailed reporting format to all members. It has asked auditors to disclose the impact as part of notes to accounts and not make them a part of their qualifications.

Source: EconomicTimes