Public sector banks can amortise in five equal installments additional burden arising out of

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pension benefits and enhanced gratuity obligation towards its employees, the Reserve Bank said on Wednesday.

The expenditure, may, if not fully charged to the profit and loss account during the financial year 2010-11, be amortised over a period of five years beginning with the financial year ending March 31, 2011 subject to certain conditions, RBI said in a notification.

The decision was taken as banks expressed concern that it would be difficult to absorb the large burden arising due to implementation of second option for pension in a single year.

Bank employees who had opted out of pension scheme in between 1993-2010 were given second option for availing pension resulting in additional burden on banks.

As per an estimate, liability of banks towards second option for pension is around Rs 12,000 crore. About 3 lakh serving and retired employees before April 1, 2010 have availed this benefit.

However, with the introduction of International Financial Reporting Standards (IFRS) from April 1, 2013 for the banking industry as scheduled, the opening balance of reserves of banks will be reduced to the extent of the unamortised carry forward expenditure.

So post-implementation of IFRS accounting norms, the balance liability towards pension payment will be reduced from the reserves leading to reduction in capital adequacy ratio.

Banks should keep in view the above condition while planning their capital augmentation, suitably factoring in Basel III requirements, it said.

Many banks has already made large provisions on account of pension liability during the 2010-11.

In view of the exceptional nature of the event, it said the new pension option and enhanced gratuity related unamortised expenditure would not be reduced from equity capital.