State Bank of India’s (SBI) outgo on account of increase in salaries and pensions will jump to around Rs 26,000 crore by March this year.

The country’s largest bank reported a 35.5% fall in net profit to Rs 9,163.96 crore for the quarter ended December 2023 due to the additional provisioning of Rs 7,100 crore towards salaries and pensions arising out of the 17% wage hike settlement reached with employee unions in November last year. The revised wages are effective from November 2022.

"Of the Rs 7,100 crore total provisions made in the December quarter, Rs 5,400 crore is towards pensions, because there was some anomalies in the way our pensions were calculated. Since 2022, some of our employees were getting 40% and some were getting 50% of their last drawn salary as pension and the matter has been sub-judice since then,” said SBI chairman Dinesh Khara.

"Now that there is legal clarity, we thought of clearing this at a go with this Rs 5,400 crore allocation. Following the recent court order, we have decided to pay every one of our 1.8 lakh pensioners at 50%. This allocation takes care of the entire backlog till December 2023," Khara told reporters.

The wage hike impact will, thus, shave as much as Rs 25,990 crore off the bank's profit by the end of March, as the bank has already provisioned Rs 13,400 crore till September 2023 and an additional Rs 7,100 crore in the December quarter. 

The state-run bank will also have to set aside Rs 5,490 crore more in the March quarter, totalling to Rs 25,990 crore. And most of the outgo is towards pensions.

Khara further said in fact the bank has been setting aside 10% each year towards salary and pension arrears so far and this adds up to Rs 13,400 crore till December 2023.

Now we will have to set aside Rs 5,490 crore more for the March quarter. With that it will be business as usual, he added.

The chairman further said Rs 1,700 crore of the Rs 7,100 crore has been provisioned towards neutralising the dearness allowance arrears, also necessitated after the wage hike settlement.

He said this Rs 1,700 crore for the pension corpus will be implemented once the government notifies it through gazette and the Reserve Bank of India (RBI) approves it.

Though both are pending, SBI decided to set aside the entire quantum in the December quarter itself.

Salaries and other benefits of the employees of state-owned banks along with some of the oldest foreign banks like Standard Chartered Bank and HSBC, and old-generation private sector lenders like HDFC, ICICI, Federal Bank, among others, are decided by the industry lobby IBA under a wage settlement that has a five-year tenure, PTI reported.

Accordingly, the latest wage hike of 17%, up from 14% in the previous settlement, came into effect from November 1, 2022 and was announced in early December 2023. 

The IBA had said the impact on public sector lenders will be close to Rs 13,000 crore for salaries.

The revision will benefit over 9 lakh employees and officers. Of the total, 3.8 lakh are with state-owned banks and over 2 lakh with the SBI. The adjustment is set to take effect from November 1, 2022, and will span up to five years.

To calculate the new pay scales, the dearness allowance corresponding to 8,088 points will be merged with the basic pay as of October 31, 2022. Additionally, a loading of 3% will be added, totalling Rs 1,795 crore.

The distribution of the annual wage hike between workers and officers will be determined separately based on the break-up of establishment expenses for the fiscal year 2021-22, PTI reported.

While the demand for pension updating for all retirees is still under discussion, it has been agreed that a one-time ex-gratia amount will be considered along with the pension for pensioners and family pensioners as of October 31, 2022.