Kotak Mahindra Bank (KMB) has announced a 10% cut in salaries for employees earning over Rs 25 lakh a year in view of the evolving Covid-19 situation. The cut will be effective May 2020 through FY21, the bank told its employees in an email, a copy of which FE has seen. There will be no impact on salaries of those earning less than Rs 25 lakh.
KMB is the first in the Indian banking sector to announce pay cuts after the Covid-19 outbreak. Interestingly, the pay cuts come at a time when analysts are viewing KMB as the leader in the private banking space.
The email to employees said Covid-19 and the subsequent lockdown have been around for some time now. “What seemed like a two-three months phenomenon in the beginning, has turned out to be a pandemic with serious implications on both lives and livelihood. More importantly, it is increasingly clear that the pandemic is not going away anytime soon. Entire mankind is praying and hoping for quick discovery of a vaccine and antidote,” it said.
At the end of March, KMB and its promoter had committed Rs 25 crore each to the PM-Cares Fund and the bank committed another `10 crore to the Maharashtra CM Relief Fund.
The communication further stated that Covid-19 is wreaking havoc on the economy which, in turn, will impact a financial services firm like KMB. Hence, the bank needs to recalibrate its costs and operations, well in advance, to ensure sustainability of its businesses.
The email reminded employees that earlier, the Kotak leadership team has voluntarily surrendered 15% of their pay for FY21, and executive vice-chairman and managing director Uday Kotak has chosen to take only a token salary for the year. “Now, it appears, we will require wider participation,” the email said.
In the last few weeks, market experts have said KMB is better poised to weather the Covid storm than its peers. Christopher Wood, global head of equity strategy at investment bank Jefferies, said in a recent note that the bank was removing HDFC Bank and ICICI Bank from its portfolio while increasing KMB’s weightage.
“For reasons of sentiment more than logic, GREED & fear will maintain one bank. But this will be the bank which has the best history of growing through past negative credit cycles and, in an interesting move, raised equity capital … presumably to prepare for troubled times ahead,” Wood wrote in a reference to KMB.