Letter dated 21 02 2006 to RBI

C N Venugopalan Ex- Manager, Union Bank of India	“ Nandanam” Kesari Junction North Paravoor Kerala – 683 513
Phone No. 0484 2447994 Mobile: 9447747994

The Governor, 21^st February, 2006

Reserve Bank of India,

Central Office, Mumbai

Dear Sir,

Banks in India, Significant Accounting Policies and Code of Ethics & Labour unrest

Thanks to the vibrant monitoring measures of the Central Bank of the Country, Banks in India have come up to international standards with significant accounting policies, asset classification norms, Income Recognition norms etc. during the past one-decade. The rigid NPA norms have also been alert to make the working result of each Commercial Bank very realistic. The extent of accuracy, however if badly affected by non provisioning of contingent liabilities of a cumulative nature in respect of certain legitimate claims against Banks. Establishment expenses like Pension are not settled correctly and a number of suits are in the pipeline in various High Courts as also in the Apex Court. The Managements with brute force arising out of the money at their command are, taking the cases to the Courts and in furtherance of their target of preventing and delaying the flow of justice to the aggrieved. The Courts that are already strangled with bundles of cases are also troubled in the process. Banks are attempting to purchase justice spending public money without the decision maker incurring any expenditure out of pocket. To cite a simple example, the offer terms of VRS in 2001 contained a definite term that the Pension Optees who embraced Voluntary Retirement would be paid Pension as per the Pension Rules of the Bank. As per the Pension Rules, a grace period of five years notional service was admissible to an employee/officer with a service of twenty-eight years and he will be eligible to get full pension as if he has put in thirty-three years. In gross breach of the terms of offer of VRS, banks did not allow the grace period to such employees. While the retirees of Bank of India fought out the case and obtained a decree against the Bank from High Court of Kerala, knowing fully the pros and cons of the situation, Bank of India has taken the matter to the Apex Court causing trouble, inconvenience and expenditure to many. This is a situation that attracts strictures of a severe nature for capitalizing out of the money power for preventing the flow of justice to the aggrieved. This tantamount to mockery of Courts as the Judicial Officers are made to deal with trifles and become instrumental to delaying justice. Banks are trying to patch holes with darkness and defend the blunders they have committed at the cost of public money.

We Indians live in a country where even a legislator who serves for a short term of five years draws a Pension. The Banks in India deny Pension to those who have sacrificed their entire life at the altar of the organizations in the name of an option exercised by them. Banks regard Pension as a consideration for an option exercised and not as consideration for the service rendered. In 1995, Banks asked the staff to exercise option in favour of the Pension Scheme keeping in the scheme a clause that the Managements would be entitled to forfeit the entire past service in case of participation in strike even for a single day. As per the Scheme, the Provident Fund Contribution standing to the credit of the employee would lapse into the Pension Fund on opting for Pension. With the exercise of the option for Pension, the employee would lose the Bank’s Contribution forthwith. Besides, he would not get Pension also, in case he participates in strike and the Bank forfeits his past service entailing want of subsequent qualifying service. On account of the catastrophical situation, many employees refrained from opting in favour of Pension Scheme on account of the penal clause. The irrational and undemocratic “forfeiture of service” clause was scrapped from the Pension Regulations in February 1999. But the Banks refrained from extending a fresh chance for Pension options to those who did not opt for Pension on account of the existence of the scrapped clause and did not accept the legal onus to do so. Those who were in the service of the banks at the time of deletion of the particular clause have filed suits in various High Courts of the country for establishing the legitimate and simple right. In Banking Scenario, RBI employees alone were given a chance for fresh option for Pension in the year 2000. Trade Unions have now called for a nationwide strike on 9^th March 2006 over the issue clamouring for a fresh Pension Option. The time for intervention of the Apex Bank is ripe to ensure that the Banking System of the country is not paralyzed on account of the folly of the Banking Barons.

The reasons the Bank Managements attribute to non-extension of a fresh option is want of paying capacity. In unambiguous terms one can say that there is absolutely no such crisis. In respect of all the employees on the rolls of the Bank at the time of commissioning the Pension Scheme, the Bank had a liability to make employers’ contribution until the date of their retirement. Banks are not at all paying the contribution in respect of the employees who switched over to Pension Scheme after such switch over. Appropriate contributions in respect of such employees on their “Basic” and eligible Pay should have been legitimately worked out and transferred into the Pension Fund on half yearly / yearly basis without the Banks incurring any additional liability on account of commissioning the Pension Scheme. On extending a fresh chance of Option, further funds will flow into the Pension Corpus through transfer of the P F Balances (Employers’ share) of fresh optees also. When the future PF liability in respect of such employees also get transferred into the Pension Fund periodically, the Pension Corpus will definitely leave a surplus after meeting the Pension obligations. The funds can be judiciously invested and the returns will also be coming into the Fund. Moreover, all the fresh optees are not going to retire in a lot and the burden will be slow and gradual. This is the premises on which Insurance and risk assuming companies work. The present Pension Payment will cease to some extent when the Pensioners / Family Pensioners die. The process is simple and natural. Banks can further desist from setting apart a certain portion of the load factor in each Wage Revision towards Pension Liability.

Significant Accounting Procedure

From the point of view of significant accounting procedure, the contingent liability in respect of the amounts legitimately payable as establishment expenses like Pension are to be scientifically accounted for so that the working results obtained are realistic. Profits is the surplus after meeting all operational and establishment expenses. The decisions in various simple and legitimate suits in respect of the Pension are to emerge and these may topple the working results of Banks in course of time. The real profits of the Bank available for distribution as dividends is the residue after meeting all operational and establishment expenditure. Pension liability is a genuine establishment expenditure that has to be properly accounted. The latest settled legal position in the Supreme Court in its Constitution Bench is reproduced beloow:

Constitution Bench of Supreme Court in Nakara Case (17 12 2002)

“Pension is neither a bounty nor a matter of grace depending upon the sweet will of the employer and it creates a vested right which is statutory in character because the Pension Rules 1972 are enacted in exercise of the power conferred by the proviso to Article 309 and clause (5) of Article 148 of the Constitution”.

“That pension is not an ex-gratia payment but it is a payment for past services rendered”

“ It is a social welfare measure rendering socio-economic justice to those who in the hey day of their lives carelessly toiled for the employer on an assurance that in their old age they would not be left in the lurch. The pension payable to a government servant is earned by rendering long and efficient service and therefore can be said to be a deferred payment of the compensation for service rendered”.

“Pension is not a charity doled out to the retired employees, but is their legitimate and inalienable right earned by the sweat of their brows”.

Present Banking Ethics

In the banking sky, one can see several wonders and strange scenes in the wake of progress and deregulated interest rates. Several episodes of co-operation and sharing of infrastructure like ATMs are in the Blue sky. Thunders and lightning occur in the dark sky when the star wars take place between the key men of Banks. To impart a cosmetic outlook to the performance, key men pull the leg s of each other. If “ A” Bank is extending a credit delivery at 12 percent rate, the “B” bank takes away the borrower of “A” bank offering the limit at 10 percent. Now comes “C” Bank with a yet lower rate of interest to the party. Mighty and Big customers with bargaining power gets an unduly advantageous deal while the poor and weaker customers pay very exorbitant rate on credit availed. The interest rate war results in drain of thousands of Crores of Rupees to the Banking system every year. The discretionary powers vested with the top executives in interest rates bring with it much scope for corruption, nepotism etc. The process of shifting accounts from Bank to Bank entails untold hardships to the field staff who are already saddled with undue workload have to process and reprocess the accounts with each take over. If the Central Bank judiciously regulates the interest rates and shifting of accounts from Bank to Bank, the process will result in saving Crores of Rupees to Banking Industry that will enable Banks foot all legitimate establishment expenses like Pension. Vibrant performance results will also be seen.

A further absurdity in the lending process is that the rate of interest charged sector wise are irrational and the so called “Priority Sectors” like Agriculture and Small Scale Industries are much higher in relation to general advances like consumer loan, car loan etc. Priority Sectors have the priority in paying high rate of interest to Banks and not in any other matter. Borrowers in these segments are being exploited like anything while general and well off people get concessions. The definition of ethics has undergone unintelligible transition.

It is learnt that Trade Unions in Banking Industry have given a nation wide strike call for pressing their legitimate demand for fresh Pension Option. The writer solicits the swift intervention of the Apex Bank for averting the untoward situation by giving appropriate direction to the IBA and Bank Chiefs to avert the unfortunate situation of the Banking Orchestra coming to a standstill on 9^th March, 2006 causing inconvenience to the Public.

Thanking you,

Yours faithfully,

C N Venugopalan

cc.to:

The Central Labour Commissioner, New Delhi

.