The Department of Financial Services has directed the National Bank for Agriculture & Rural Development (Nabard) to ascertain the size of the capital requirement.
The government is mulling capital infusion in regional rural banks to reduce the payout burden of the new pension scheme which threatens to derail these banks’ lending to small and marginal farmers, two people familiar with the development said.
The Department of Financial Services has directed the National Bank for Agriculture & Rural Development (Nabard) to ascertain the size of the capital requirement, one of the persons cited earlier told ET. Nabard, in turn, has directed every RRB to appoint actuaries for the calculation.
Each of these banks will create a pension corpus by transferring fund from their profit and loss account. This exercise would dampen their profit numbers and may also lead to book losses. This, in turn, could put strain on their capital as the banks will not be able to plough back profit.
“The shortfall in their capital risk adjusted ratio (CRAR) will be made good by the government,” people involved in the process of finalising the new pension scheme told ET.
While the actuarial valuation on the pension corpus will take some time, RRB union members are guessing that the cumulative size could be up to Rs 20,000 crore. A part of it—about Rs 5,000 crore—can be taken from Employees’ Provident Fund Organisation.
The government will infuse 50% of the capital requirement while public sector banks with their 35% holding in each RRB, and the respective state governments with 15% shareholding, will have to share the burden proportionately.
However, doubts have been raised as to whether banks under prompt corrective action framework will able release funds.
RRB employees had won a protracted legal battle in the Supreme Court for parity in pension in April last year.
A Nabard official said that about 13 RRBs have started paying pension with effect from April 2018, while the arrear payment before the cut-off date may not be considered due to practical difficulties. There are 36 of such banks operating across the country now.
Leaders of their employees association said they would move court again to fight for arrear payment.
At present, about 30,000-odd retirees since 1993 are eligible for revised pension. It has been decided that RRB employees, who were in service as on September 1, 1987, will be eligible for the new pension scheme. RRB employees who joined the service after April 1, 2018 will not be eligible.