Axis Bank is eyeing a recapitalization following its move to acquire Citibank’s customer businesses in India at a cost of up to ₹12,325 crore.

Amitabh Chaudhry, MD & CEO, Axis Bank, said that the capital increase, which will probably come from the institutional placement (QIP) route, will be “large enough” to mitigate the impact of the acquisition on the bank’s capital and. also to take care of growth needs.

India’s third-largest private sector bank last raised equity in FY21, when it raised about ₹10,000 crore through a QIP by issuing 23.80 crore equity shares at ₹420.10 each. Shares of the bank on Tuesday ended at ₹749.95 apiece, down 0.79 percent compared to the previous BSE trade.

Financial comforts

In interaction with Line of BusinessChaudhry noted that the bank has a more than adequate capital ratio (17.83 percent as of June-end 2022), while the Common Equity Tier (CET)-1 ratio stands at 15.16 percent. “This (acquisition) will clearly have an impact on our capital ratio – 180 basis points (bps) directly plus other impacts depending on the assets we acquire.”

“On the risk-weighted assets we acquired (about ₹27,000 crore), there will be an impact. So, capital will have to be deployed there as well. It could be 30-50 bps,” he said. Chaudhry emphasized that the bank is also growing. “This (acquisition) may require us to increase that capital a bit. Right now where we are, I don’t think we are looking to raise capital before FY23 results,” he said.

Deal with Citibank

On March 30, 2022, Axis Bank had announced that it would take over Citibank’s customer businesses from Citibank NA India and Citicorp Finance (India) Ltda.

As part of the acquisition, the bank will acquire Total Final Payments of ₹27,400 million across credit cards, mortgages, personal and ready loans, asset-backed funds and small business banking; about 25 lakh cards; deposits totaling ₹50,200 crore; total assets under management (wealth and private banking) of ₹1.1-lakh crore; 7 offices, 21 branches and 499 ATMs. The Bank received information from the Competition Commission of India on July 26 that the above mentioned combination has been considered and approved.

To a question whether the bank will raise the same amount as the resources it gets for the acquisition, Chaudhry said: “The flexibility is there… a little bit here and there will not matter. If you look at our numbers, at least in Q4FY22, Axis Bank generated sufficient sources of capital , which can further our growth.

“…And that is good, because that means that our profit is so good that we don’t need to rely on capital from outside. It also means that our shareholders’ income will increase directly.

As the bank relies on generating capital to sustain its growth and profitability, and financial metrics improve, the bank will gauge what may be the right amount of money to raise. “We don’t want to get into a boxing match about what that (capital raising) number is. But it has to be big enough, it can’t be a small number. Why waste everyone’s time on raising a small amount?” Chaudhry said.

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