SBI Profit

The comparatively better life expectancy for SBI should have been claimed as a creditable achievement of a benevolent employer. Instead, the chairman has introduced the feature as a reason for the bank’s poor overall performance. This paper also has given prominence to additional provision of Rs2.4k for pension in FY14 on account of actuarial revaluation, while taking lightly the increase in NPA from Rs51.8k to Rs60.9k in the first quarter of the year. It is not clear whether life expectancy of past and present employees has jumped up from 76 to 81 in one year or the valuation was done after the lapse of some years.

Times of India, August 13, 2013

Rise in life expectancy takes toll on SBI profit

Of the bank’s 2.24 lakh employees, 1.8 lakh come under the old scheme where the employee receives pension linked to inflation based on his last drawn salary.
MUMBAI: A rise in life expectancy has resulted in a Rs 2,400-crore hit for State Bank of India during the current financial year.

Announcing the results announced on Monday, SBI chairman Pratip Chaudhuri said that there has been an actuarial revaluation of life expectancy of past and present employees from 76 to 81 years. The life expectancy for SBI employees is different than the life expectancy for general population, which is much lower.

Of the bank's 2.24 lakh employees, 1.8 lakh come under the old scheme where the employee receives pension linked to inflationbased on his last drawn salary. The defined benefit pension scheme was replaced by a new one from August 2010.Compared to a pension provision of Rs 481 crore in the first quarter of FY13, the bank has made a provision of Rs 1,003 crore - an increase of 108%. This has resulted in the staff expenses to operating expenses ratio rising from 64.23% a year ago to 65.67% in the first quarter of the current fiscal.

In the west, government's and large corporations have experienced the pitfalls of a 'defined benefit' pension scheme where the employee is guaranteed a regular income for the rest of his life. But increasing life expectancy and a drop in interest rates have made such schemes unviable.

"The additional provisions that we will have to make are to the extent of Rs 2,400 crore. We will be making a provision every quarter," said Pratip Chaudhuri, chairman, SBI. For the current quarter, the bank has made a provision of close to Rs 700 crore toward pension."

The additional provisions for pension and another Rs 500 crore provision towards depreciation of dollar-denominated bonds dragged down SBI's first quarter net profit to Rs 3,241 crore - a decline of 14% from Rs 3,752 crore in the corresponding period last year.

SBI stock fell over 3% to Rs 1,605 on the BSE on Monday.

Chaudhuri said that following the US Federal Reserve's announcement of the likelihood of withdrawing the monetary stimulus, yields in US treasury bills had shot up.

The bank's margins came under pressure as growth in interest income did not keep pace with the growth in the cost of deposits. While total interest income rose 9.67% from Rs 28,923 crore inQ1FY13 to Rs 31,718 crore, deposit expenses rose 13.4% from Rs.15,957 crore in Q1FY13 to Rs 18,085 crore in Q1FY14.


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