The recent ruling of the Supreme Court in a dispute over calculation of pension for retired employees of the state-run National Bank of Pakistan (NBP) is an eye-opener for the banking industry in several ways.

One, it brings forth an important aspect of the management-employee relationship. Two, it shows how it is in the interest of banks’ management to set this relationship right before it is too late. And three, it shows how, and under which circumstances, banks can find themselves in a difficult situation if certain issues are not addressed on time and in a manner that leaves no legal or regulatory vacuum at all.

A three-member bench of the Supreme Court recently ruled that a federal government notification issued on Nov 30, 1977 regarding 70 per cent pension for NBP’s retired employees was statutory in nature and the employees were entitled to it.

The NBP, after the dissolution of the Pakistan Banking Council and after getting the status of an autonomous entity under the Ministry of Finance, had reduced the pension from 70pc to 33pc in 1999. This led to a long legal battle between the bank management and the employees who retired between 1999 and 2003.

Now, its employees have finally won their case in the apex court which means the bank will have to pay them the difference between the actual pension paid to them and the pension that was their right, as per the apex court’s ruling. This translates to about Rs48 billion.

On the face of it, the Ministry of Finance apparently made a mistake by not elaborating on the NBP’s full legal obligations for the federal government’s notification

The NBP can request the Supreme Court to form a larger bench for hearing this case again because the bank may land in trouble after dishing out such a large sum of money which is equal to two years’ profits of the bank or 21pc of its equity, according to media reports.

Regardless of whether the NBP moves the apex court to get another hearing or it begins implementing the three-member bench verdict, “the core issue is how on earth banks today can manage their cost of employees when their profit making is becoming increasingly difficult in a historically low banking spread environment”, says a senior local banker.

Pre-privatisation officers and executives of the United Bank Ltd (UBL) have also recently sought the federal government’s help for increase in their pension.

According to UBL’s Former Executives’ Association, the bank had launched a pension scheme for its officers and executives back in 1997 (long before the bank’s privatisation in 2002) and many had participated in it.

The association believes that certain rules of the scheme makes it incumbent upon the trustees of the UBL pension fund to effect periodical increases in pension payment. But after the bank’s privatisation that has not been the case.

How the federal government can now intervene into this matter, or why UBL’s new management should or should not concede to meeting the demand of its formers officers and executives, are legal questions that can be answered only by legal experts.

But what perplexes an ordinary mind is this: why did the Privatisation Commission not take this aspect of the pension scheme into consideration before handing over management of UBL to the private sector? “Of course, the management of a privatised UBL cannot be blamed for something which is not of its own making,” says a senior executive of the bank.

On the face of it, in the National Bank of Pakistan’s pension case as well, the Ministry of Finance apparently made a mistake by not elaborating on full legal obligations for NBP of the federal government’s notification dated Nov 11, 1977.

“If our pension scheme announced during the time when we were under the Pakistan Banking Council was statutory in nature as the honourable apex court has now ruled, whose responsibility was it to tell us so?” inquires an NBP insider.

“Now, paying the 8,000 retired employees the arrears of pension requires us setting aside a very huge amount. That’s going to hurt us particularly in this low-interest-rate, low-banking-spread environment.”

In a revision of its pension scheme announced in late July this year, NBP’s board of directors approved an increase of 20pc in pension of its employees who retired before the end of 1998, 15pc for those who retired between 1999 and 2009 and 10pc for those whose retirement took place between 2010 and 2016.

But this fell short of the aggrieved pensioners who had retired between 1999 and 2003 and whose representatives had already gone through long-stretched litigation with the management in different high courts, officials of NBP recall.

The three-member bench of the Supreme Court in its Sept 25 ruling also dismissed all applications filed by the NBP management in high courts.

Published in Dawn, The Business and Finance Weekly, October 3rd, 2017