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PSB Privatisation – Government May Sell Pension Fund to Attract Buyers

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PSB Privatization – The government may have to sell the pension funds to attract investors in the two public sector banks (PSBs), which the government intends to privatize as the buyers may not be willing to take over these liabilities. The pension fund will be hived off so that it is independently managed by agencies such as the Life Insurance Corporation of India or other pension fund managers, who will guarantee monthly pension payments, commutation of pension on retirement, among others.

It is believed that to attract investors, the government may have to hive off the pension funds of the two yet-to-be-identified PSBs that will be put on the block. A mid-sized PSB is having about 32,000 retired employees.

Actuarial valuation of the Pension Fund

Banking experts observed that before the government sets the ball rolling on the privatisation of two PSBs, actuarial valuation of their pension funds should be done and, shortfall, if any, in respect of retired and serving employees, should be provided beforehand. Further, the pension fund should be hived off so that it is independently managed by agencies such as the Life Insurance Corporation of India or other pension fund managers, who will guarantee monthly pension payments, commutation of pension on retirement, among others.

“The acquiring bank should continue to remit 10 per cent of pay as hitherto in respect of serving employees. It should also undertake to pay additional obligations arising out of promotions.”

“The government should guarantee continuation of the pension scheme, its implementation and all payments due to employees covered under the scheme till the final payment is made (they were absorbed as PSB employees and the government has the obligation).

Also Read – BOB is Now Added as a Potential Bank for Privatization

In her Budget speech on February 1, Union Finance Minister Nirmala Sitharaman said that besides IDBI Bank, the government propose to take up the privatisation of two PSBs and one general insurance company in the year 2021-22.

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