Acquisition of Citibank India’s retail business will lead to a one-time loss for Axis Bank in the fourth quarter, analysts said. However, the core profitability of the acquiring bank is expected to remain intact, they added.
Axis Bank will write-off Rs 11,600 crore as goodwill in Q4FY23 along with other costs, including increased provisioning where Axis Bank policies are more conservative and transaction costs.
“This will push the bank into one-time loss, but core profitability to stay intact,” Jefferies said in a report. However, brokerages are expecting the acquired business to break even by Q3FY25. The key impact would be in the goodwill amortisation, resulting in a loss in 4QFY23, Kotak Institutional Equities (KIE) said in a report.
The acquisition is expected to pull down the capital adequacy of Axis Bank, but it will remain well above the regulatory requirement. The lender’s common equity tier-I capital (CET) is expected to reduce by 177 basis points (bps) to 13.8% in Q4FY23. The bank has indicated that it has comfortable CET-I levels to grow without any disruption, the domestic brokerage said.
“Given the operational performance and post-acquisition capital position, we will have sufficient capital post acquisition to fund organic growth of existing and acquired business,” Amitabh Choudhry, MD & CEO of Axis Bank, said in an analyst call. However, Jefferies has said that it will remain watchful of a fundraise going ahead.
“These are still the early days of the merger, and it would probably take a year to understand the full benefits or challenges,” KIE said. Axis Bank will have to focus on employee integration after the merger, especially in middle and senior management, and the difference in brand perception when customers start experiencing it after the merger, it added.
The deposit franchise of Citibank India saw a rundown of Rs 10,000 crore in the normal course of business, and the management has guided that further attrition would not be material, an Indian brokerage said. The high proportion of current account, savings account (CASA) deposits coming in from Citibank India will improve Axis Bank’s consolidated CASA ratio by around 150 bps to 46%. This will aid the bank in garnering low-cost deposits, which other lenders are vying for.
Axis Bank on Wednesday completed acquisition of Citibank’s India consumer operations and the acquisition has added 19% to cards segment, 33% to wealth AUM and 4% to loan book.
“The bank is getting access to a solid affluent category, along with a higher share of corporate accounts, which makes the value proposition of Axis Bank stronger,” KIE said.
