Our aspirations are big and Citi deal gives us strategic thrust to close the gap with peers: Amitabh Chaudhry

“We believe the price which we are paying for the Citi businesses is more than fair and it will allow us to just accelerate our journey into becoming a premium banking enterprise in the country, ” says Amitabh Chaudhry, MD & CEO, Axis Bank.


This deal was in the works, now it is official we can really talk about it. If I look at the history of Axis Bank, first they acquired the security business of Enam Securities, then under your leadership, the Max Financials insurance business and now the Citi business. Let us understand why Axis Bank is acquiring so many assets?
Let’s start with the first one – Enam Financials. If you look at where we are today post the acquisition. Axis Capital as it has been renamed, is the number one player in the equity capital markets in the country. It has expanding business on the brokerage side. We are becoming a meaningful player on the M&A side. In our one Axis strategy, it fits in extremely well and as India is also becoming one of the global startup players and more and more companies are coming in, we can continue to play a very important role and benefit from this One Axis strategy. So that acquisition has worked out well.

As far as Max was concerned, it just made sense for us. We were distributing Max products for more than 10 years. There was an opportunity to sign up a long-term deal with them in terms of distribution and we could potentially get equity stake at a much lower price. It just made so much sense and obviously it strengthened our partnership with Max. We really like the company and the management team. I think the promoter has done a great job in terms of creating this enterprise and so that also fitted in very well with our strategy in terms of taking meaningful stakes in companies with whom we have long term partnerships.

As far as the Citi deal is concerned, the portfolios which we are acquiring from Citibank are a strategic fit in our GPS journey towards granularising our retail business and premiumising it. It further consolidates our position as one of the leading banking franchises in India. As I have been saying. a transaction of this nature comes once in the lifetime. Citibank has been running this business for 120 years. They are the premium consumer banking franchise, yes not such a growing one, but they have perhaps the most premium customers in the country. When you get an opportunity like this, it makes sense that at a certain price you do bid for it.

I think Citi found us to be the best choice for this particular business and we are delighted. Obviously this acquisition will create opportunities and synergies that will catapult us on a much faster trajectory. It is not that we are not growing on our own but it further accelerates our journey towards creating enviable franchise across the country. It will bring tremendous value for all the stakeholders. It will provide access to one of the best affluent consumer franchises in India. It will also bring to the consumers of the Citibank franchise, the power of One Axis.

We are present across the breadth and depth of the country. We have products which go much deeper, much wider than what Citibank has been able to offer and yes if you look at, cut through the portfolio of businesses we are acquiring, it includes the quality credit card portfolio and affluent wealth management clientele, meaningful deposits with 81% of it being CASA and other consumer lending portfolio. It has been known in the market for its Citi phone services. You will get salary account, base of 1600 plus corporates, Suvidha corporates. There are a lot of very interesting parts and each of them kind of adds to and strengthens our franchise.

So from that perspective, this acquisition made sense. We believe we have paid the right price for it. We believe we have structured a transaction where we have protected our downside to ensure that if there is a customer attrition beyond a point, we are protected but the reason we have done the deal and we believe we will be successful is because we are getting a great set of customers. We are getting a great set of people – 3,600 employees who we really value and obviously other parts of the business which make a lot of sense for us.

You said asset like this comes on the block once in a lifetime. So was there a bidding war because we understand that there were other suitors also? Did Axis Bank overpay to acquire this once-in-a-lifetime asset?
This transaction was initiated by Citibank sometime in June of last year. I am sure other bidders were there in the process. Whether we have paid or overpaid or underpaid, the market has responded in a particular way. Lots of analysis is being done by various people in terms of what we have paid and I think the general response is that it has come at a decent price. I do not know if someone else was there, what prices they bid at, why they were not selected, etc, etc. It is just pure speculation.

We believe there was a price which we got our approval from our board for. We stuck to that price and obviously Citi liked the price to do the transaction with us. The transaction took slightly longer because it is a complex transaction. We are not buying a company. We are buying a portfolio of businesses and so it took some time to wade through some of the complications that come with it and it was very important that they drawed down some of these complications upfront rather than discover them through the transition process.

I think both the parties have benefited from taking their time, thinking through the issues and ensuring that we are on the same page in terms of how we will respond to as and when these issues come up because it is very clearly laid down in the agreement which we have signed with them.

If I look at the assets which you have acquired and I am quoting brokerage reports here, the ROA is at 1.6 which is not very far away from the normalised ROA of 1.4 to 1.5. That means that the deal will take if not three, minimum two years before the real benefit kicks in?
Yes. Our primary focus here is that we need to ensure that for the customers of Citibank, it is extremely seamless. We do not want to hurry this through. So, first, we believe it will take about nine to 12 months to get all the regulatory approvals to get dispensation from the regulator and certain areas. We also need to get customer consent and there are various ways of getting that customer consent depending on what kind of agreement they have with Citibank. It will take that much time and then there is what we call the LD1 date, when the portfolio will get transfered to us and the price consideration will be paid.

From there on, because Citibank is working of its own technology platform, it will take another 18 months to transition every Citi customer on to our platform. Why we are taking so much time is because we want to be careful, we do not want to do it in a hurry, we want the transition to be slow and gradual so that the experience for the customer does not change. Obviously technology transitions do take time but Axis Bank will be servicing those customers from the LD1 date which is about nine months away.

Our agreement with Citi and our understanding with Citi is to ensure that these customers do not face any problem whatsoever and over and above that, they get addition products, additional benefits which Axis Bank products can provide to them. It will take a little bit of time as we have pointed out in our analyst call and as we have shared with the media. But it is the right thing to do and our desire is to get this very quickly. We do not want to spoil the customer experience. We want to ensure that each and every customer of Citibank stays with Axis and expands their relationship with Axis as we move forward and the same applies to employees of Citibank.

Is this a conscious strategy which Axis Bank is adopting now because you had a legacy issue in terms of the corporate book exposure? The last decade was almost a nightmarish decade because the industry went through a painful, grinding slowdown and that really impacted the corporate book.
We have not acquired this because we want to move away from wholesale. I think we believe that we will be one of the primary wholesale banks in the country going forward. Right now the wholesale bank side is a little bit muted because credit growth is muted. Secondly, the pricing on the wholesale banking side is also quite fine and we just want to be careful about just giving our balance sheet out at prices where the NIMs do not make any sense to us, but over a period of time, there is a lot of other work which we do on the wholesale banking side.

I am very confident that as the Indian economy expands, the wholesale side will also expand. The reason why this deal makes sense for us is obviously it fits in very well with our granularisation strategy. We have grown organically all these years on the retail side and we have done exceedingly well but our aspirations are bigger and this deal gives us that strategic thrust to close the gap with peers and improve the quality of our franchise across many parameters meaningfully.

Our market ranking moves up, our quality of customers moves up, our premiumisation moves up, our profitability also moves up. It is ROA accretive, it is NIM accretive, it speaks to LCR very well and then we get this quality set of people which Citibank has obviously hired and nurtured over a period of time and finally they have these global processes and systems that you can learn from. So every which way, it adds to what Axis Bank has to offer to its customers. Obviously it comes at a price. We believe the price which we are paying is more than fair and it will allow us to just accelerate our journey into becoming a premium banking enterprise in the country.

Are you already pencilling in a 20-30% customer attrition in terms of your projections and growth?
When we bid for this deal, we had done a survey using some external agencies in terms of how will Citibank customers react to the change of guard when Citibank sells out, how will they react to different brands and obviously one of the important thing we are checking is how will they react to a brand like Axis. It has given us some real insights and what kind of attrition we can see. They have given some real insights in terms of what concerns the customers might have etc, etc. Obviously when we look at a survey like this, we do take into account the possible attrition of customers if not possible attrition of business. We also take into account the possible attrition of staff but that is how you price for the deal.

But our intention and our whole energy will be focussed on ensuring that no one leaves us – either the customers or the staff. Yes, we are in a very competitive market, we expect competition to try to wean away customers and staff; we fully understand and appreciate that but we are not going to let go off either the customers or the staff that easily. And the work started yesterday actually.

This acquisition will hit your CET by about 230 bps, which means to reach that comfort zone, you will have to raise capital. Will it be a good idea to raise capital at a time where in general, the credit growth has not picked up and ROAs are not the best?
Our strong balance sheet gives us the flexibility to fund Citi India’s consumer purchase through on balance sheet liquidity, external capital or a combination of both. As you rightly pointed out, the impact is about 230 bps. While the resultant CT-1 ratio will remain comfortably over regulatory requirement of 13% or higher, we may consider raising equity capital in the future at an appropriate time to restore all or part of the CT-1 consumption.

Please understand that our balance sheet allows us that flexibility and we intend to use that flexibility over the next nine months to three years to decide when is the best time to raise capital. Let us also not forget that given the growth which we are recording anyway as Axis Bank, we would need capital on a regular basis. This transaction will require us to raise capital maybe slightly earlier than what we had anticipated.

Also, let us not forget that the price consideration and the payment of that price consideration is about somewhere between nine to 12 months away. So yes, we have enough time, we have enough flexibility and we will obviously take the right call at the right time depending on how the market evolves and there is an important consideration for both regulatory and shareholder perspective which we will obviously take into account.

If I look at the other mergers which have happened within the financial space, there are integration issues, cultural issues, pension liabilities. How will you manage and map all that?
Obviously a very important part of any merger of this size is how to execute that merger. Integration management committee has already been formed and yes some of the important considerations in that plan would be around customer attrition, staff attrition, technology transition and so on and so forth and also getting benefits in terms of ensuring that we can cross sell more to the Citibank customers.

We can also reduce some of the costs which are there in that business. When I say cost and I do not mean employees, I mean just the global cost of the businesses because it is part of the global franchise. So as part of that integration plan, obviously we have thought through some of these issues. Now we will dive deeper into those issues because an agreement is signed along with Citi and come up with a very detailed plan in terms of how we manage this.

We know some attrition will happen; the issue is how well we manage it and how much we restrict it and mitigate it and give comfort to the clients and the staff that frankly they are better off working with us and being with us rather than going and seeking some other banks or some other people they want to work with. Our view is that we should be able to manage it exceedingly well. You mentioned the pension issue and I know what you are referring to, we are buying a portfolio of businesses from an existing entity. We are not taking over a publicly listed enterprise.

So, as part of that, there are clear disclosures which Citibank has made to us, all those disclosures have been taken into account but obviously there are parts of the agreement which indemnify us for some of the things which might not have been disclosed, might not have been covered and so on and so forth. As I said, the deal has taken slightly longer than expected because I think both the parties sat down and tried to ensure a level of retail is possible so that some of these issues do not come up in the future. If they do and sometimes they do, we believe we have signed agreements which mitigates the risk for Axis Bank in a very significant manner.

Can I say that the Axis One strategy now has really fit in very nicely? The market/security business has become big for you, the insurance business is on its way to become big and now you have got the wealth business and the credit card business. Is the full bouquet offering of Axis Bank ready now and we should not expect any more acquisitions?
With this acquisition, we will have enough on our plate to execute on. So from that perspective, I do not anticipate any other acquisition happening in Axis Bank for some time. But as our management team and as our board would say, you can never say no because some transactions might come along, it is sometimes important to look at them but yes in all likelihood, Axis Bank going and trying to seek another acquisition looks like a distant possibility at this point in time.

Can I say that right now the market should not speculate that any of our subsidiaries will go public very soon because you are still in the building process for the three businesses which you acquired?
When we had laid out our GPS strategy, we had said that we want to scale up our subsidiaries. Our four big subsidiaries have scaled up exceedingly well. Axis Finance is in my mind perhaps one of the best performing NBFCs with high ROE, no NPLs. Axis Mutual Fund has continued to go from strength to strength. Axis Capital we discussed. Axis Securities profitability has gone up 10 fold in comparison to what we had two years back. In that sense, the subsidiaries are doing very well.

We believe that some scaling up is required even further in the future. There are some limitations in terms of how much equity capital we can continue to infuse in some of them because of regulatory requirements. So depending on how well some of the subsidiaries do, we might be required to list one of them sometime in the future. Our focus right now is to ensure that the subsidiaries continue to scale up, become top five, then become top three in the area they operate in. Some are already there, some still need to get there and finally, that value will feed into Axis Bank and obviously it feeds into our overall Axis One strategy in a very,very big way.