Venkata Vamsi Krishna PatnaikHi Rakesh,
Initially the company/HOd should have given him a written letter on Non-performance like a DAP (development action plan) or PIP (performance improvement plan) showing his failures or situations where ever he has to buck up. Now in the absence (as per your query the employee has given a letter and you have informed verbally on his increment) and presently you want to reply him.
If you want to reply stating the reasons for his denial of increment, mention in your letter what is expected from his performance for him to be eligible for salary hike.
And you should preferably give the letter getting all substantive reports on his production for evidence as produced by the HOD.
From India, Hyderabad