Interview | ‘Attrition in Citi portfolio well within expected zone, ‘ says Axis Bank MD & CEO Amitabh Chaudhry | The Financial Express

Interview | ‘Attrition in Citi portfolio well within expected zone, ‘ says Axis Bank MD & CEO Amitabh Chaudhry

The bank is in discussions with the RBI to ensure that the regulator is aware of and approves of the timelines associated with Axis’s acquisition of Citi’s India consumer business

Interview | ‘Attrition in Citi portfolio well within expected zone, ‘ says Axis Bank MD & CEO Amitabh Chaudhry
‘Corporate sector credit demand is still muted and is mostly due to refinancing requirements or inflation-driven working capital needs,’ says Axis Bank CEO

The attrition in Citi’s customer base is well within the estimates made at the time of the valuation exercise, Axis Bank MD & CEO Amitabh Chaudhry tells Shritama Bose. The bank is in discussions with the Reserve Bank of India (RBI) to ensure that the regulator is aware of and approves of the timelines associated with Axis’s acquisition of Citi’s India consumer business, he adds. Edited excerpts:

Are you risk-averse on wholesale?

Our NIMs (net interest margins) have been behind the competition for some time and it was important that we set that right. Axis’s NIM has been averaging around 3.4% for a long time with an asset quality that was not necessarily good. The risk weights on our portfolio were also higher than the competition. During Covid, we reduced our risk weighting, which means we pivoted to higher quality. That would actually make NIMs to go down. We have been taking steps to improve NIMs, but that was not quite visible because on the other side, we were doing things which were taking NIM away. So it remained in the zone of 3.4-3.5%. That gap with banks who are at 4% or more still remains. We want to get to that level.

Also Read: Axis Bank unveils ‘Dil Se Open – Aapke Liye’ campaign

Consequently, we have to be conscious about the kind of incremental assets we take on. Once we get to 4%, if the asset mix under those conditions can be maintained, then the wholesale book can also start growing. Today, it is difficult to do that because we can’t get into deals at low NIMs. On wholesale, our growth has been limited because we have been avoiding or not bidding, and in many cases, losing deals because of pricing. Since we now have a better profile of customers, it’s not risk which is holding us back. It’s because we want our P&L and NIMs to grow sustainably.

Do you expect credit growth to sustain at current levels?

We have seen the credit growth coming back to the system after some gap. A large part of it is being driven by retail lending, which will likely sustain as we have a good story on consumption. Corporate sector credit demand is still muted and is mostly due to refinancing requirements or inflation-driven working capital needs. Given that the economy is growing at 12-13% in nominal terms, the current level of credit growth looks sustainable in the near term. If the investment demand from the corporate sector picks up, it will provide further fillip to the credit growth. Key challenge will be in ensuring that deposit growth keeps pace. Over the next few quarters, the RBI is likely to withdraw surplus liquidity. Along  with higher policy rates, this will create pressure on funding costs that will need to be passed on.

Are you looking to raise capital this year?

Given our growth, we do need capital every couple of years. With the Citi acquisition, which will happen in the January-March quarter, as per our current estimate, it will advance our requirement for capital. Not that we need to raise capital before the transaction is done, but yes, it might advance our need to raise capital. We do not intend to raise capital before the financial year is over. We’ll look into AT-1, but that won’t fully satisfy our capital requirements. It will be like what we’ve done in the past – a QIP to raise money from both domestic and foreign institutional investors.

What remains to be done with respect to completing the Citi deal?

Quite a few things. Our CCI approval has come. We have formed teams within Citi and Axis which are working together. There are 18 sub-tracks of the acquisition exercise. The progress on the external part, which is getting customer approvals, has been quite good. The process is mainly digital, but the customer reach-out is being ensured through calls and meetings wherever required. We do need to give time to our customers to get to that point. Secondly, we need discussions with the regulator on various aspects of the deal and the same has been initiated.

Also Read: Axis Bank Q1 profit nearly doubles as provisions plunge

Citibank will continue to offer technical support for acquired assets and liabilities for some time. We also need to ensure that Citibank customers continue to be serviced without disruption. Temporary use of brands during the transition period  and usage of Citi codes are also important necessities. We will require to discuss and share with the RBI where we stand on each of these issues and get their acceptance.

One of the reasons for doing this deal is that it provides us with a very good talent pool. A huge exercise is required there – we need to map the roles and grades of employees, ensure that their salaries and benefits are well-mapped into the Axis system. We will also need time to be able to talk to them and ensure that the process is seamless. We’ve hired some external consultants to help us, so that it’s transparent and well-accepted by both the sides. The final big piece of work is technology transition. Most of their technology systems are different from ours. It will take another 18 months to transit the entire technology, but we have to plan for it today. During the whole transition period, our biggest focus point would be to keep the customer experience seamless.

Could there be a need for invoking clawback mechanisms?

No, I don’t think so. When we got into the deal and did the valuation, we understood some of the metrices would play out in a certain way. We understood that there would be some attrition of customers and staff. So, we had modelled for all these changes in our valuation exercise and then structured the deal in terms of mitigation of those risks when we entered into the transaction. Based on whatever we see today on business and attrition, we are quite comfortable with how Citi is performing and the metrices are very much within the zone we had modelled for. No concern at this stage. If the numbers do go out of the way, our mitigation mechanism will kick in.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.