Covid-19 pandemic may eat into bonuses of domestic investment bankers

The pandemic has put a cloud on bonuses that domestic investment bankers expect to receive this year.

Based on deal activity, experts peg the bonuses at 30-60 per cent of annual salaries for FY20. Actual payouts — to be doled out by the end of this month or the next — however, may be much lower as banks look to conserve cash.

Increments, on the other hand, are likely be shelved altogether, considering the bleak outlook for fundraising in FY21. Bonuses for foreign bankers, however, have not been impacted by the pandemic. This is because these banks typically follow a calendar year cycle, and were handed out their variable pays in January/February, much before the impact of Covid-19 actually started showing. “The overall bonus pool for domestic banks may shrink this year as I-banks would want to conserve capital in the backdrop of the pandemic,” said Pranav Haldea, managing director of PRIME Database.

Last year, bankers took home 30-50 per cent of their annual pay as bonuses, far lower than the 100-200 per cent they pocketed in the year before. The sky-high bonuses for FY18 correlated with the record fundraising by way of IPOs and QIPs that year.

 

 

Bonuses are typically commensurate with deal activity and fees earned. The kind of deals these bankers were part of, and the role they played, are also deciding factors. Banks pocket 2-3 per cent as fees, on an average, for managing IPOs, and 1.5-2.0 per cent for handling QIPs. 

Buybacks fetch Rs 1-2 crore per deal. Fees depend on the issue size and number of bankers managing. “Bonuses will be linked to deal activity in FY20, and but there may be some rationalisation in payouts,” said a senior I-banker.

“Most of the domestic banks have done well in terms of revenue. However, given the bleak outlook, it will be up to individual managements to take a call on bonuses,” added another banker.

FY20 witnessed equity fundraising of Rs 91,670 crore through public markets — 62 per cent higher than the previous year but 48 per cent lower than FY18, according to PRIME Database.

Fresh capital accounted for 61 per cent of the total equity fundraising. Thirteen main-board IPOs came to the market collectively, raising Rs 20,350 crore in FY20 — a 38 per cent rise from the previous year.  SBI Cards’ offering of Rs 10,341 crore was the largest during the year. The average deal size was Rs 1,565 crore. Thirteen firms mobilised Rs 51,216 crore through QIPs, 388 per cent higher than the previous year. The largest QIP was by Bharti Airtel, which raised Rs 14,400 crore.

QIPs were dominated by banks, NBFCs, and telcos — accounting for 79 per cent of the overall amount.

According to market players, the pandemic may upset equity fundraising plans in the coming months, with likelihood high of no activity in Q1 and Q2. “While the IPO pipeline continues to remain strong with more than 30 firms wanting to raise over Rs 30,000 crore, it is highly unlikely that any of these issues will hit the market, till such time the uncertainty ends,” said Haldea.