Private sector lender IDFC First Bank, on May 26, became the second listed bank to publicly announce salary cuts for the current financial year.
Kotak Mahindra Bank and non-banking finance company (NBFC) Indiabulls Housing Finance are the other leading players in the financial services industry to have announced pay cuts in the last couple of months, since the outbreak of COVID-19 pandemic. Some of these pay cuts have been dubbed as voluntary.
"Such pay cut forms part of the bank's austerity measures which start at the top. Further, we feel the pain our customers, big, small, micro-enterprises and people at large are going through, and we also want to be empathetic to the situation," said V Vaidyanathan, Managing Director & Chief Executive Officer (CEO), IDFC First Bank.
Vaidyanathan has offered to take a 30 percent cut in his compensation- including the fixed income and allowance- for financial year 2020-21.
IDFC First said its senior management has volunteered to take a 10 percent cut in compensation for 2020-21.
On hirings, the bank said it had honoured all offers made to new hires before the pandemic outbreak. These included lateral hires as well as 550 management trainees.
"The bank also paid 100 percent of the variable pay to 78.2 percent of employees for the period pertaining to FY20 despite the arrival of the pandemic. Variable pay for FY20 was cut more, progressively, for employees with greater seniority, and bonus for senior management was cut by 65 percent of the eligible amount," its statement read.
Last month, Kotak Mahindra Bank also announced that its leadership team had decided to voluntarily take a 15 percent salary cut for the current year. The bank's CEO Uday Kotak, who is counted among the richest bank bosses in the country, had also opted to forgo his entire salary for FY21, and take a token Re 1 pay instead.
"We are in the midst of a battle to protect both lives and livelihoods. The revival of the economy will depend on a healthy and robust financial sector," Kotak Mahindra Bank said in its statement announcing these pay cuts.
Also read: COVID-19 impact | Kotak Mahindra Bank cuts CTC by 10% for all staff earning above Rs 25 lakh
Weeks after this, Kotak Mahindra Bank also declared a 10 percent pay cut for all its staff earning above Rs 25 lakhs per annum, with effect from May 2020.
In an internal memo announcing this pay cut, which was reviewed by CNBC-TV18, Kotak's group chief Human Resources officer Sukhjit S Pasricha said, “What seemed like a 2-3 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.”
In another such instance, Indiabulls Housing Finance announced last month that the senior management of the company has decided to take voluntary pay cuts of an average 35 percent for the current financial year. According to the company release, the decision was taken to “lead the efforts on expense control” by volunteering these cuts.
Its Chairman, Sameer Gehlaut will not be drawing any salary for the current financial year, and its MD & CEO Gagan Banga will take a steep 75 percent cut in his salary.
One way to look at these pay cuts is to see them as short-term measures to avoid a much more unpleasant outcome- that of widespread layoffs. The other reason for these salary cuts is more obvious: with uncertainty rising, businesses want to preserve cash and maintain sufficient liquidity to sustain themselves through the crisis.
In a recent instance, HDB Financial Services, the NBFC arm of HDFC Bank, laid off at least 100 people, according to people in the know. HDB Financial Services, in a statement to CNBC-TV18 however had then said that these layoffs had “nothing to do with the ongoing lockdown or the resulting economic situation.”
Press Trust of India (PTI) reported last week that Indiabulls Group had asked nearly 2,000 employees to resign from the company. Several alleged employees of Indiabulls Housing Finance even took to social media to post recordings of their managers asking them to resign with immediate effect, even though their contract offered a three month notice period.
CNBC-TV18 has not independently verified this report.
Surely, if the crisis drags longer than expected and economic activity is further hit, some businesses may find that these pay cuts are not sufficient to stave off job cuts.
That businesses will face losses due to the nationwide lockdown is a given now; even the otherwise cheerful Reserve Bank of India (RBI) Governor Shaktikanta Das looked rather sombre as he announced a rate cut to support economic growth, which he expects in the "negative territory" for FY21.
The only question is- how bad is it going to get, before it gets better?
Source: CNBC-TV18
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