The banking sector's wage settlement is yet to be signed; the bone of contention being the redefinition of pension benefits which the unions are clamouring for.

The redefinition will involve an extra Rs 1,200 crore (Rs 12 billion) outgo from banks to cover pension expenditure. Bank officers' associations are demanding that pension be made 50 per cent of the last drawn salary.

From 1998 onwards bank managements have been paying retiring employees 50 per cent of about 80 per cent of the last pay. Prior to that superannuation benefit was defined as 50 per cent of the last drawn salary.

Unions are demanding a reversal in the definition since it entails a larger pension sum on retirement, said sources associated with the development.

The earlier definition had been formulated in order to keep employee contribution to superannuation benefits lower. What will the redefinition mean for the banking sector?

A knock of Rs 1,200 crore to take care of the arrears and the future payments of the 83,000 employees who retired after April 1998 and higher pension expenditure going forward.

The Rs 1,200 crore outgo will have to be with the Rs 2,200 crore (Rs 22 billion) outgo on account of wage revision of bank employees when the wage revision settlement is signed.

The new definition will have to be extended to retired employees as well since a Supreme Court ruling states that the superannuation benefits of all employees be uniform.

The pension benefits are uniform across the 26 public sector banks (excluding State Bank of India [Get Quote]) and each bank will have to bear an additional burden of about Rs 40 crore (Rs 400 million) if the banks succumb to the pressure of the unions.

Alongside bank managements have asked employees to increase their contribution towards their own pension benefits in the backdrop of decreasing rate of returns.

Employees have been asked to increase their contribution from 18.25 per cent to 20.25 per cent of the cost of their pension.

Bank managements and unions agreed on a 13.25 per cent increase in employees' wages in late November 2004.