The public sector banks must create a provision of Rs. 14,000 crore for unamortized pension liabilities as per the Basel III norms, reported CARE. This must be done before the 1st January 2013 kick off of Basel III norms.
Unamortized liabilities are those for which the provisions aren't made. The PSBs now must write off this Rs.14, 000 crore off its books, which is around 12% of their net worth in the last fiscal. The profitability of the banks might be hit if the banks charge these liabilities to the profit and loss account stated the CARE report.
The banks must seek approval from the RBI if they were to charge the pension liabilities to the reserves account. Last year SBI wrote off Rs. 7,900 crore from reserves account after RBI nod.
PSB estimated salary escalation at 4.6% as against private banks' 5.1%. Any change in this figure would affect the profitability. Add to it, most of the PSBs are using the old and outdated mortality table of LIC, which further exposes them to pension fund investment risks.