Axis Bank plans ‘big capital raise’ post Citibank deal

Axis Bank is eyeing an upfront capital raise following its move to acquire Citibank’s consumer businesses in India for a consideration of up to ₹12,325 crore.

Amitabh Chaudhry, MD & CEO, Axis Bank, said that the capital raise, which most probably will be via the qualified institutional placement (QIP) route, will be “large enough” to neutralise the impact of the acquisition on the bank’s core capital and also take care of growth requirements.

India’s third largest private sector bank had last raised equity in FY21, when it mopped about ₹10,000 crore via QIP by issuing 23.80 crore shares at ₹420.10 apiece. The bank’s shares on Tuesday ended at ₹749.95 apiece, down 0.79 per cent over previous close on the BSE.

Comfortable financials

In an interaction with BusinessLine, Chaudhry observed that the bank has more than sufficient capital adequacy ratio (17.83 per cent as at June-end 2022), with the Common Equity Tier (CET)-1 ratio at a comfortable 15.16 per cent. “This (acquisition) will have an impact obviously on our capital ratios — 180 basis points (bps) straight off the bat plus another impact 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 deployed there also. It could be 30-50 bps,” he said. Chaudhry underscored that the bank is also growing. So, on a regular basis it does need capital. “This (acquisition) might require us to upfront that capital-raise a little bit. Right now where we stand, I don’t think we’re looking to raise capital before FY23 results,” he said.

Deal with Citibank

On March 30, 2022, Axis Bank had announced that it willacquire Citibank’s consumer businesses from Citibank NA India and Citicorp Finance (India) Ltdas going concerns.

As part of the acquisition, the bank will get aggregate End Net Receivablesof ₹27,400 crore across credit cards, mortgage, personal and ready credit Loans, asset-backed finance, and small business banking; about25 lakh cards;aggregate deposits of ₹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 an intimation from the Competition Commission of India on July 26 that the aforementioned combination has been considered and approved.

To a question if the bank will raise an amount equivalent to the resources it is ponying up for the acquisition, Chaudhry said: “That flexibility is there... little bit here and there is not going to matter. If you look at our numbers, at least Q4FY22, Axis Bank generated sufficient internal sources of capital, which could sustain our growth.”

“...And that is good, because that means that our profitability is good enough so that we don’t need to rely on external capital. It also means that our shareholders’ returns will automatically go up.”

Since the bank is becoming self-sufficient in terms of generation of capital to sustain itsgrowth and profitability, and the financial metrics are improving, the bank will weigh what might be the right amount of money to raise. “We don’t want to get boxed in as to what that (capital-raise) number is. But it has to be large enough, it can’t be a small number. Why waste everyone’s time in raising a small amount?” Chaudhry said.

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