Why SBI Has 35% Decline in Net Income

The country’s largest lender, State Bank of India (SBI), has reported a significant decline of 35% in its net income for the October-December 2023 quarter. Let’s delve into the factors behind this sharp decrease and understand the implications.

Additional Provision for Wage Hike Settlement

The decline in profit is primarily attributed to the additional provision of Rs 7,100 crore made by SBI towards salaries and pensions. This provision stems from a 17% wage hike settlement reached with employee unions in November 2022, with revised wages effective from the same month.

Impact of Wage Hike Settlement

SBI Chairman Dinesh Kumar Khara highlighted that out of the total provision, Rs 5,400 crore is allocated towards pensions due to anomalies in the calculation method. The bank has decided to pay all 1.8 lakh pensioners at 50%, resolving the backlog till December 2023.

Projected Impact on Profit

The wage hike settlement is expected to reduce SBI’s profit by Rs 25,990 crore by the end of March. With Rs 13,400 crore provisioned till September 2023 and an additional Rs 7,100 crore in the December quarter, the bank anticipates setting aside Rs 5,490 crore more in the March quarter, primarily towards pensions.

Lets see Allocation Breakdown

Of the Rs 7,100 crore provision, Rs 1,700 crore is earmarked to neutralize dearness allowance arrears, pending government notification and RBI approval.

What is Wage Hike Settlement

The wage hike settlement, which came into effect from November 2022, impacts salaries and benefits of over 9 lakh employees and officers, including those in state-owned banks and leading private sector lenders. The revision, spanning five years, necessitates merging dearness allowance with basic pay and adding a 3% loading.

Addressing Industry-Wide Changes

The wage hike settlement underscores the ongoing industry-wide adjustments in salaries and pensions, aiming to align compensation structures with evolving economic realities. While these provisions may temporarily impact financial performance, they reflect SBI’s commitment to ensuring fair and competitive remuneration for its workforce amidst dynamic market conditions.

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