Uday Kotak Took A Pay Cut In FY20
A motorcyclist wearing a protective mask rides past a Kotak Mahindra Bank Ltd. branch on a near-empty street in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Uday Kotak Took A Pay Cut In FY20

The top two executives at Kotak Mahindra Bank took a pay cut in the financial year ended March 2020, according to the lender's annual report.

Uday Kotak, managing director, saw his annual remuneration decline to Rs 2.65 crore during the fiscal from Rs 3.24 crore reported a year ago. Including stock options, Kotak’s annual remuneration was at Rs 2.97 crore in FY20 compared with Rs 3.54 crore a year ago, the bank’s annual report released on Friday showed. That works out to an 18% cut.

Kotak, however, is also promoter of the bank. As such, his compensation is not comparable with other private banks' chief executives such as HDFC Bank’s Aditya Puri who took home Rs 18 crore in FY20, an increase of 39%.

Last month, Kotak sold a 2.8% stake in Kotak Mahindra Bank for more than Rs 6,900 crore to reduce his ownership to 26.1%, as required by the Reserve Bank of India.

Kotak, however, was not the only executive at the bank who took a pay cut.

Dipak Gupta, whole time director and joint managing director, saw his overall remuneration fall to Rs 9.44 crore in FY20, down 1.36% from a year ago. His remuneration included a basic pay of Rs 2.64 crore and Rs 6.8 crore worth perquisites. The perquisites paid out to Gupta included stock options. In its notes, the bank specified that the perquisite value towards stock options is the difference between exercise price and market price on the date of exercise. His basic salary was down 18%, the annual report showed.

KVS Manian and Gaurang Shah, who were inducted on the bank’s board as whole time directors in November 2019, earned an annual remuneration of Rs 3.64 crore and Rs 3.16 crore, respectively, in FY20.

Overall, the bank’s employees, other than key managerial personnel, saw an average hike of 11.97% in FY20.

For FY21, Kotak Mahindra Bank has already announced that its senior management will be taking a 15% pay cut in the wake of the Covid-19 pandemic, while Kotak has forgone his entire salary for FY21.

Kotak’s Message To Shareholders

In his message to shareholders, Kotak wrote that the damage caused by the Covid-19 pandemic to the global economy is comparable to the grim past of the Great Depression and the Second World War. However, not everything is doom and gloom.

Economists have already penned in a contraction in India’s GDP in the current financial year. Kotak said the government and industry should not worry too much about the current fiscal’s slowdown and instead plan and work towards a medium-term growth strategy.

“I will not be too worried on how the rating agencies perceive the widening fiscal deficit — rather than being in denial, we must focus on the areas where we can improve. Here, investments in healthcare and education are the foundations for India’s future,” Kotak said in his letter.

In the meantime, there will be cost to pay. If 4-5% of the banking system’s loans turn bad due to the Covid-19 crisis, the capital position of the banking sector will get impacted by about 40%. “There will be some mark-to-market gains as bond yields have dropped. Still, the financial sector will need to be recapitalised.”

As far as Kotak Mahindra Bank’s business is concerned, the management will focus on three aspects. First, the safety and security of all of its employees. Second, a relentless pursuit of controlling cost and improving productivity. In the last strategic initiative, the bank’s lending business will look at the world in to two parts: Before Covid (BC) and After Covid (AC).

In the AC world, we are looking at our lending business differently, through three filters. First, we develop a view on the sectors we are comfortable with. Second, we look at levels of fixed operating costs of individual companies (the higher the level, the more cautious we are). And third, we are mindful about how we deal with businesses or companies with high leverage.
Uday Kotak in his letter to shareholders, Kotak Mahindra Bank Annual Report FY20

Going ahead, the bank will take the benefit of the government’s guarantee over micro, small and medium enterprise lending. Kotak Mahindra Bank will also look at improving its customer franchise business in non-credit risk areas. Businesses such as insurance, advisory, wealth management, asset management and securities will see focus within the group, he said.

The recent qualified institutional placement by Kotak Mahindra Bank, where it raised Rs 7,400 crore, helped the bank shore up its capital base for any future issues and reiterate the market’s confidence in the bank’s franchise, he said.

However, even the strongest ships must remember the story of the Titanic, Kotak said. The fact that the Titanic was considered unsinkable before its fatal crash with the iceberg which overwhelmed all its safety precautions, is an important lesson, he said.

“In that context, we have been conservative leading up to this crisis. Prioritising return of capital over return on capital is our basic mantra as a leveraged business. Hopefully, that will stand us in good stead,” he said.

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