Public sector banks are likely to start building up provisions for next wage revision starting December 2012. The Indian Banks Association has sent this proposal to the Reserve Bank of India (RBI) seeking the regulator's approval.
The RBI had asked banks to make advance provisions because bank P&Ls show too much volatility at times of wage revisions. CNBC-TV18's Gopika Gopakumar reports.
Wage revisions in the past have led to a significant impact on public sector banks profitability. It is to avoid this that RBI in its Financial Stability Report said that banks should phase out the provisions due to the liabilities arising out of wage revision.
This will ensure that the burden is not concentrated in the year when the settlement is signed.
The Indian Banks Association has now suggested that banks are building up advanced provisions starting December 2012. That