Ladies and gentlemen, good day and welcome to the Axis Bank conference call. Participation in the conference call is by invitation only. Axis Bank reserves the right to block access to any person to whom an invitation has not been sent. Unauthorized dissemination of the contents or the proceedings of the call is strictly prohibited and prior explicit permission and written approval of Axis Bank is imperative. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions at the end of the briefing session.
Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. On behalf of Axis Bank, I once again welcome all the participants to the conference call. On the call, we have Mr. Amitabh Chaudhry, MD and CEO, Axis Bank. I now hand the conference over to Mr. Chaudhry. Thank you, and over to you, sir.
Faizan, thank you so much. Thank you all for joining us at a short notice. Trust you and your loved ones are all safe and healthy. We also have on the call Rajiv Anand, Deputy MD, Subrat Mohanty, GE Axis Bank Business Group, Ravi Narayanan, GE Retail Liabilities and Products, Sumit Bali, GE Retail Lending and Payments, Puneet Sharma, our CFO, Ravindra Rao, who heads our retail lending business, Sanjeev Moghe, EVP and Head, Credit Cards and Payments, and Satheesh Krishnamurthy, EVP and Head, Private Banking and Affluent Business. Axis Bank has today executed definitive agreements for the proposed acquisition of Citi's consumer businesses in India, comprising of credit cards, unsecured and secured lending portfolios, wealth management, private banking, and retail deposit businesses. The proposed acquisition is subject to approvals.
As part of this transaction, around 3,600 in-scope employees of Citi's consumer business are expected to join the Axis family. We look forward to warmly welcoming each one of them and anticipate a great future for the combined team. The purchase consideration subject to customary and contractual adjustments at closing date for the proposed acquisition will be INR 12,325 crores, translating to a price-to-earnings multiple of 18.7x based on normalized calendar year 2020 stand-alone earnings. We expect the necessary approvals to close the transactions to be in place in the next nine-12 months and another 18 months to fully integrate the acquired businesses. A transition services agreement with Citigroup and its affiliates is in place to assist with the integration of its businesses to the Axis Bank platform.
We estimate that the post-tax integration costs over the two financial years post-closing would be INR 1,500 crores. We are delighted that Citi found in us the perfect institution to carry forward their rich legacy. Citi's consumer businesses in India needs no introduction. The portfolios acquired are a great fit to the two key pillars of our GPS strategy, building a premium base of customers and increasing granularity. We have made significant strides over the last two years in building this organically. The addition of Citi consumer businesses is a tremendous boost to us in that journey. We are committed to make sure the transition experience for the customers and employees of Citi is smooth. They will find in us an open, customer-centric, and future-ready bank that will offer them a world of new opportunities.
We have shared a presentation that sets out details, but let me briefly touch upon the businesses we are acquiring and our integration preparedness. We will then open it up for Q&A. The acquisition will provide us access to perhaps the best affluent consumer franchise in India. The customers will have access to One Axis, a full-service financial institution that meets their every need. On credit cards, Citibank has a complementary and quality portfolio of 2.5 million cards with among the highest monthly spends per card across industry and a book size of around INR 8,900 crores as of June 2021.
This would strengthen our position as a top three credit card player in India by book size, with a healthy increase of around 31% to our existing card base and significant gain in credit cards market, spends market share, which will go up by 480 basis points. The acquisition is a natural fit for our strong wealth management Burgundy franchise. We have organically built one of the best tech-driven wealth platforms with AUMs of over INR 2.67 trillion in the last two years. Citi's affluent clientele, backed by global best practices in client servicing and operations, would complement this franchise. The combined AUM would increase by 42%, thereby making us the third-largest wealth manager. On deposits, with 81% CASA ratio and 73%, savings accounts, this is truly granular consumer business.
This also comprises a best-in-class salary account customer base with access to 1,600+ with our corporates. This will accelerate Axis Bank's journey to build a high-quality salary savings account franchise. The combined CASA ratio on a pro forma basis would improve by 201 basis points to 47%, and it'll also be LCR accretive. The consumer lending portfolio, INR 18,500 crore, consists of mortgage, asset-backed finance, small business lending, and personal loans. These are our focus segments as well, and we will deepen our relationship with this base, offering our differentiated financial solutions. Over the past many decades, Citi India has attracted the best talent into its consumer businesses. We are excited to welcome this high-caliber pool into the Axis family.
Our large and fast-growing retail banking business will provide the right platform to them to play to their potential. The world-class CitiPhone banking services are part of the transaction parameter. This will ensure continuity of service excellence with Citi customers and enhancement of services for Axis Bank customers too as we take this franchise of CitiPhone to other parts of Axis. To sum up, the acquisition strengthens our market position, reduces gap in key segments with peers, and provides a possibility to accelerate retail business growth in a value-accretive manner post-integration. Let me now briefly touch upon each of the key components of the integration. To begin with employees, we have a rich network of Citi alumni across the bank who run our key business segments. Some of them are present on the call today.
Their success in Axis Bank reflects the alignment of culture and values between the two organizations. Axis Bank is also a Great Place To Work-certified organization that recognizes our talent management practices. Additionally, we plan to have these senior leaders at Axis Bank, who are familiar with Citi's way of doing business, to play a key role in the assimilation of Citi's colleagues within the Axis system. We are extending employment offers to 3,600 employees of the Citi's consumer business to be a part of our story and benefit from our large and growing franchise. Given the expertise that Citi employees bring to the table, we view them as a significant addition to our existing team who will help in driving synergy realization and our GPS objectives.
Coming to customers, Citi customers would continue to avail all the rewards, privileges, and offers they were previously entitled to during and after transition. We will ensure the continuity of superior service levels to the customers. The transition period is to make sure the customers have no disruption in their experience. Customers will benefit from Axis Bank's wider reach and comprehensive service offerings, along with our One Axis capabilities. The Axis Mobile banking app, the highest-rated app in the sector, will offer flexibility to customers to view as well as transact across deposits, investment, payments, and protection solutions.
Our focus on customers has been recognized in the past two years. We were the most recommended retail bank in India and most helpful bank in India as per The Asian Banker BankQuality Consumer Survey in 2021. Citi customers will find in us a safe pair of hands. On products, the portfolio being acquired across the key segments offer compelling synergies. For example, Citi has major presence in top eight cities in the affluent segment, which will strengthen our presence.
We would further leverage our marketplace platform GRAB DEALS and extensive merchant partnerships to provide great offers for incoming customers. Our product offerings in the Burgundy space across all asset classes are wider and deeper in terms of product and asset manager choice. Further, our key differentiation in terms of speed to market and our innovative new product offerings will give Citi's customers a much richer product suite. Finally, on technology, at Axis Bank, we have been investing significantly in technology and digital over the last two years towards modernizing the core systems, building resilience across our operations, and delivering seamless digital customer journeys.
The experience gained through this technology transformation will be helpful during the integration and migration process. For example, given the scale this deal brings to our credit card business, the learnings from the successful upgrade of our credit card and payments platform last year will come in very handy. Our transformation journey currently underway across our various key business segments are staffed and managed independent of the integration team. Our dedicated integration team comprising of senior members in Axis is in place and will be directly supervised by me. Further, a robust mechanism of cooperation between Citi and Axis Bank has been established to ensure ongoing dialogue to resolve any concerns that may come our way. The deal structure and the timeline required for customary regulatory clearances gives us about nine months of headstart in this process.
To conclude, Axis Bank has grown organically all these years and has scaled 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. We have a strong balance sheet, comfortable capital levels to execute this deal, and the right team to make this a success. Faizan, let us now open it up for Q&A, please. Thank you.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. An operator will take your name and announce your turn in the question queue. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. First question is from the line of Mahrukh Adajania from Edelweiss. Please go ahead.
Yeah. Hi, congratulations. My first question is just on the cash part. So you said that the normalized profit is around INR 840 crores. That assumes zero return on the cash of around INR 250 billion. Is that correct?
Mahrukh, thank you for the question. Puneet here. The way you should think about the normalized earnings is business as usual in the Citi world, minus global Citi costs, minus any COVID-related impacts. That is how the INR 842 crores has been computed. It would be as if the business was running within Axis. In a normalized year, that is what would be a representative part of that business.
Got it. The loans you get from the deal are around INR 265 billion or INR 260 billion, correct? There's an equal amount of cash. That's correct, right?
Yes, Mahrukh. As part of the transaction, we get a balanced balance sheet. Yes. That understanding is correct.
Got it. What if the portfolio attrition is higher than expected?
Mahrukh, I think the way we've looked at this transaction is, one, we do believe Axis proposition for Citi customers is a strong and compelling proposition. Second, with the Citi workforce joining hands with us, and we look forward to welcoming them, that should help us keep the customers both well-serviced in terms of service quality, as well as widen the product offerings that we can offer the customer. While there are attrition assumptions that have been built in for us, we do believe that we should be able to manage that in a reasonably contained manner.
Got it. My last question is on how would you fund the deal? You've shown the impact on capital in your slides.
Mahrukh, as we've always said, we have a strong capital position both on a CET1 and overall capital basis. The purchase consideration is 180 basis points of CET1 charge. We feel comfortable to be able to fund that from the balance sheet that we currently have. It will be funded from internal sources as we currently speak.
Thank you. Thanks a lot and good luck.
Thank you. The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.
Yeah, congratulations for the deal. A few questions. Firstly, in terms of the behavior of the portfolio, since the time Citi has announced the intention to exit, how has it been. Maybe when we look at it, everyone would have tried to chase, you know, those customers. Would there have been very high attrition? Would that attrition assumption be built in the way you said? Like, there are some assumptions which are built in, but would they have been considered or it was like the normal attrition over the period which would have been considered? That would be great if you can explain in terms of the behavior over last three odd quarters on the Citi's portfolio.
Kunal, thank you for your question. I think, rather than explaining attrition assumptions, I think what I would broadly say is both the asset side of the balance sheet and the liability side of the balance sheet has held up reasonably well compared to the reference balance sheet that we made the assessment on. Our assessment was as of 30th June 2021 balance sheet. Based on the last available numbers that we have, both assets and liabilities have remained resilient. That's where I would leave that comment at.
Sure. Secondly, in terms of the write-offs. When we look at Citi's Q1 CY 2021 results, in fact, the credit cost is quite significant for India, which is almost 5.4 odd % compared to the normalized credit cost of less than 2 odd %. I think when we are looking at CY 2021, in fact, no CY 2020 numbers on a normalized basis, CY 2021 would have been drastically different from CY 2021 looking at only the Q1 numbers because that's where they have shared. Besides that, there were no numbers there.
Kunal, I think, like we said earlier, the way we look at this business is what will this business do in a normal year? The way we have estimated the normal year is absent COVID, absent global charges that the Citi business currently pays. That's how we have estimated the normalized profit, and we've used calendar year 2020 as a base for the assessment.
Sure. Lastly, 13% Tier 1 has been the threshold for us in terms of taking a call on capital raise. Would we consider this to be kind of a one-off due to the acquisition, or would we still continue with that strategy to start evaluating the capital raise given that post the transaction Tier 1 would be 13 odd %?
Kunal, I think, maybe it's worth me highlighting at the moment that we have signed a transaction today. Closing is nine-12 months from signing date because it needs customary approvals. There is a process before we can close. One, I just want to place for your attention the fact that the capital deterioration or consumption is not happening today. It will happen when we finally end up closing. That's one aspect. The second aspect is we will, like we have said previously, we believe that our balance sheet is strong enough to be able to fund this transaction. As and when we need to raise capital to continue to grow the franchise, we will examine options at that stage.
Okay. Yeah. Once again, congratulations and all the best. Thank you.
Thank you, Kunal.
Thank you. The next question is from the line of Adarsh Parasrampuria from CLSA. Please go ahead.
Yeah. Hi Amitabh, Puneet, you did talk about the INR 1,500 crore cost, both on outgo and integration cost. Once you take that over the course of time in two years, post that, this number becomes zero, so the running profitability that you show of INR 842, assuming portfolio stays as it is. Is that the run rate or you see differences in how it will look once you integrate and have a cost to it?
Adarsh, thanks for your question. I didn't catch all parts of it, so please allow me to paraphrase what I understood your question was, and then maybe attempt to answer it. I think there were two parts to your question. The first part to your question was, are the estimated integration costs temporary or permanent? And second part of your question was, post the full integration, would the normalized P&L look like the normalized P&L? Or would it improve or deteriorate depending on cost escalations or cost synergies?
Yeah.
Adarsh, is that a fair understanding of your question?
Yes, yes, Puneet. Absolutely.
Okay. Thanks, Adarsh. I think the estimated integration cost that we've put out at INR 1,500 crore has two components. There is a component that we end up paying Citibank for services that they will provide us during transition. There is an element of integration expenses that Axis Bank will incur by itself. The INR 1,500 crores represents both those costs. We expect those costs to be incurred over two financial years post-closing, and we expect those costs to be transitory in nature. i.e., when the integration is completed, the integration costs will disappear.
To your second question on what will the P&L look like, the normalized P&L is taking expenses for running this business in the normal course, absent Citi's global overhead. Once integration is done in a normal year, assuming assets, like you said, hold up, the INR 842 would be reflective of the profits from the business on a standstill basis.
Got it. You know, I'm gonna repeat the question because I'm sure you'll keep getting this question, and if you can spend more time, maybe you don't wanna talk about a certain fall rate of customers and retention and what assumptions you would have used. You know, but fair to say that there was, you know, it was a set of affluent customers used to a certain brand and you will have some fall rate, right? You could have some fall rate rather. Even qualitatively, if you don't wanna give a number, if you're gonna give a direction of firstly, in the interim till the transaction completes, what are the incentives for the organization planning it to retain customers?
You know, between now to then, there's a 12-month window and a lot of these loans are, you know, I would say short-term in nature, right? Number one. And post that, right? So yeah, that would be the main question. So till you integrate and after that, what's your key to retention? And any clawbacks. Honestly, what I would also ask, is there a performance-linked payment or there is absolutely, you know, if the portfolio is down 30%, you still end up paying $1.6 billion.
Adarsh, thanks for the many questions. Let me start with the first one, which is attrition assumptions. I think the way I would respond to your query is when we assess the valuation that we have agreed to put out for this business, in our minds, we have taken a reasonably conservative attrition assumption baked into our valuation, and therefore, we think that risk is priced into the price that we have agreed to pay. To your question on what is the incentive for Citi to continue to ensure that the business stays at current levels or grows from here forward.
Without getting into the specific details because we're not able to talk about it, but at a conceptual level, what I can tell you is there is full alignment between Citi and us in terms of where the purchase price premium will work for the seller to ensure the purchaser gets a full business transferred to it on closing date, i.e., there is a cascade that has been agreed assuming business parameters deteriorate. There is protection built for Axis Bank as part of the transaction structure.
Oh, okay. Got it. Just to clarify this, and this is my last thing, is basically there'll be a certain assumption on fall rate and, if things are materially worse, then you have some safeguards.
Yes, Adarsh. Amitabh here. Of course, you know, in a transaction of this nature, if you agreed to a price, there will be protection built in on, as Puneet Sharma pointed out, on some business parameters. Between the pro forma date, which is June 2021, and what we're calling LD1 date, and correct me if I'm wrong, which is when the liabilities and the assets gets transferred to us, which we are projecting nine-12 months from today.
If we will compare the numbers and if there is a difference in those numbers on those business parameters, there will be some formula-based working that will be done and the purchase consideration will be determined again, if necessary and if required. Those protections obviously are built-in to our. We have looked at each of the businesses there, in some cases separately also. All those are in place. Yes. Sorry, Adarsh, you were asking something? Sorry.
No, that's it from my side. Thanks.
Okay, thanks. Thank you.
Thank you. The next question is from the line of Vishal from UBS. Please go ahead.
Hi. Hi, Amitabh and Puneet. Congratulations.
Vishal, can you come closer to the mic? Can't hear you very well, please.
Hello. Is it better?
Yeah, better. Much better.
Yeah. Hi. My first question is on the cross-sell synergy. Can you share something about what would be the top, you know, like tenth percentile, you know, Axis Bank customer look like in terms of cross-sell? And how are, you know, they different from what is, you know, being acquired from Citi? Any color on that?
We do not have real data on the exact customers that Citibank has under various categories. We have an idea of the profile of those customers. Today to start estimating, there are two elements which you need to think about, at least from a deal perspective. One is the potential of cross-sell. We obviously need to understand the customers better. Firstly, on some obvious basis, Citibank does not do certain things. In certain cases, we do it much deeper, much wider than what Citi does. Our understanding of some of those businesses is much better because we have been doing the businesses longer than Citi, especially in the Indian context.
The cross-sell positives obviously will get established in the next six-nine months as we go through this, you know, this nine-12 month first phase, as we call it. But our belief is, given the breadth and depth of what One Axis can offer, it's not just Axis Bank alone, we will be able to mine some of these customers in terms of the wider set of products and services they are buying now much better than what they are doing currently. That's point number one. Second element which you need to think about is, as Puneet pointed out, while someone asked a question on integration costs, integration costs will fall away of course, but also the Citibank business today currently is being charged by global centers on various support services they are providing.
In our case, Axis Bank will provide those services and the additional cost element which would come because of that is not gonna be very high. These costs will fall away, which should help our overall cost story also to some extent. If you want, I mean, obviously, we have bid for the deal at a certain price. We've got these customers, got these assets, got these liabilities. There are these two additional elements which are very difficult to price today because you need to get deeper into some of these numbers, but it is very obvious that we can do more.
Okay. On the incremental capital requirement, which is, you know, additional 50 basis points. That implies almost 30% growth, you know, in from the 180 basis point portfolio. Is that right?
No. No, Vishal.
You are-
My apologies, Vishal. Please complete your question.
No, sorry. I'm just saying that 50 basis points seems, you know, to suggest that there is, you know, another 30% growth in RWA which is expected.
No, Vishal. The way the deal is structured is the 180 basis points is the purchase price that we're paying to buy an asset. The balance sheet that we get as part of the asset is a NAV zero balance sheet, which is assets equal to liabilities. Therefore, the assets that we get as part of the balance sheet have an underlying capital charge. That 50 basis points represents the capital charge for those assets. It is capital charge for assets being taken.
Understood. Thank you. Yeah. Thank you. All the best.
Thank you. The next question is from the line of Sri Karthik from Investec. Please go ahead.
Hi. Thank you for the opportunity. I have a couple of questions. The first is pertaining to the timelines of the transaction that you outlined. From a disclosure perspective, what would FY 2023 for transaction closing and September 2024 end of transaction closing encompass?
Thank you for the question. I think the way to read the timeline is we signed definitive documents today. There are customary approvals that are needed to close the transaction, plus processes that we need to mutually complete with Citi. The first timeline is once the customer reapprovals and the mutually agreed processes are complete to take over Citi customers both on the assets and liability side. The first timeline that you see is what we call as the closing date or Legal Day one of the transaction.
The second timeline that you referred to is post-closing date, we will continue to use services that Citi will provide to ensure that the customers are not inconvenienced. The second timeline is when we cease to avail of those services from Citi and the business is fully integrated into the Axis platform. Those are the two timelines that we've called out. nine-12 months from signing date and then 18-24 months post-closure for.
The pro forma balance sheet timeline is more like FY 2023 end then?
I guess when you say pro forma balance sheet, you mean when the balance sheet gets integrated with us? Yes. If that is the question, yes. Closing of the transaction will be nine-12 months from today.
Understood. During this period obviously we will be consuming organic capital, which versus our current CET1 ratio of 15.8% would be lower. On that base you would still have a 230 basis point incremental consumption end of FY 2023 then?
While you are technically correct, I would only supplement that by saying that I accrete capital through profits in the same period. If I was to complete that equation for you, that is capital accretion through profits.
Yes.
That could fund growth with-
And also RWA growth commensurate to this period is what I'm assuming.
That is correct. I'm just completing the equation for your kind consideration. In that equation that you set out, you probably also need to factor organic capital accretion through profits.
Thank you. The last question is the estimated integration cost. I understand that some of it is more prudent accounting, but I wanted to see if you could provide us some more breakdown for the INR 1,500 crore.
Sorry, I didn't catch the question correctly, but maybe I paraphrase what I understood.
A further breakdown to maybe broad headlines on the INR 1,500 crore integration cost.
I think what we've called out on the INR 1,500 crore integration cost is roughly about INR 1,200 crores to be paid to Citi for transition services. The balance 300 is integration costs at Axis' end for over the integration process over two financial years. That's the integration expense. The prudent accounting and the goodwill is called out separately.
I see. Okay. Thank you. The last question, Puneet, is, you know, the conditions for this transaction to be ROE accretive for CY 2024, what would you outline as one or two key assumptions?
Well, listen, it is a living, breathing, running business. You can see the standalone financials that we've put out, basis the CY 2020 numbers. I called out earlier that we have certain assumptions that we've built into the valuation on account of attrition. As long as we stay true to our inherent assumptions, and the business continues to be at the starting point that we set out on slide 15, that is the basis on which we feel comfortable to make the statement that it will be ROE accretive in calendar year 2024.
The only question that I feel is repeating is the fact about whether there is going to be any growth during this period when the integration is happening for the underlying base. Is that an assumption that you're making?
Like I said, I think my request will be to think about this as a net sum business. There will be attrition. The business is growing, so the net effect of attrition plus business growth of current base as we estimate it, leads us to believe that calendar year 2024 will be ROE accretive. Those assumptions have been factored in prior to us making that statement.
Got it. Okay. Very helpful. Thank you so much, and all the best. I'll come back.
Thank you. The next question is from the line of Mahesh M B from Kotak Securities. Please go ahead.
Hey. Hi. Good evening. Just a couple of questions from my side. One is on the employee side. Outside of the, let's say, the field staff or the sales team, how much of overlap do you think you would have with your existing line of employees that you have, businesses that you have across the various businesses?
Mahesh, very difficult to say at this stage. I think the way I would request you to look at it is that we are growing all the businesses which we are acquiring from Citi anyway. There is a natural attrition which we also have in each of the businesses, and Citi also has a natural attrition. In that sense, even if there was an overlap, I think it will very, you know, quickly get taken care of because attrition will account for it and the growth will take care of the rest. We are hoping that we and we are, you know, we want each and every of those 3,600 employees to become part of the Axis journey. That's what our hope would be. Work very hard towards it.
Sir, okay. Thanks, Amitabh. Just on the other side, on the customer side, have you at least have had chances to see if the overlaps are there or you've not had the chance to see to that level of detail?
We went as part of the whole process, we did external surveys, and we looked at not only what kind of overlap we have across businesses, but we also looked at what the response of those customers to Axis brand and some of the brands is, what it could mean for us in terms of attrition, what it could mean for us in terms of whether we'll become the primary or the secondary or whether they'll buy other services from us. Those inputs were taken into account in building our models internally and coming up with the bid price. You know, we actually had some real evidence and some survey going into our entire bidding process.
You know, we used very high-end consultants for this exercise, and only on that basis, the price was determined. We believe we can get customer attrition lower than what some of that is predicting because it is saying based on what the customer is saying, this is what the attrition could look like. Now, if we work on it, we contact some of these key customers and offer our proposition to them. We believe the attrition level will come in lower than what the assumption in the models were.
Perfect. Thanks a lot. Amitabh, just a question to Puneet. Puneet, how have you come up with this number of 180 basis points with respect to intangibles and transaction cost write-off? Isn't there a tax benefit on the goodwill that gets written off on this deal?
Mahesh, with the change in income tax rules, acquired goodwill is no longer tax-deductible, so we've taken the goodwill charge on a gross basis. Having said that, we are still evaluating what's the best way to optimize this. What we've put out is a full goodwill charge in year one without tax breaks as we charge on capital.
Okay. Perfect. Just one clarification for that slide 15, the pro forma numbers that you've created, you acquired a business of, on the asset side, which is about INR 27,000 crore, deposits of INR 50,000 crore. You've done it for this or you've done it for any other number here?
We have done it for accommodation, and I'll ask some of the business guys to add, Mahesh. Yes. We firstly get a credit card franchise with 2.5 million credit cards with a certain spend profile and obviously some receivables, which are included in the asset number. Then we get a wealth management franchise, and part of the deposits capture that wealth management franchise, but it goes beyond that. I mean, you know, they have Demat accounts, they have, you know, they're buying some other products from Citibank, so it adds to the wealth management franchise. Yes, obviously it comes with a. I know if you look at our slide, what is the slide number, sorry? Seven. Sorry.
Yes, if you look at the slide number seven, it talks about some, you know, the breakup of the on the credit card side, on the wealth management side, the number of retail customers, the 1,600 Suvidha corporates, where they have certain salary accounts. You know, some of these corporates will have operations across the country. We come with a franchise which has 4,600 branches. I mean, we have acquired it, yes, for a certain liabilities and certain deposits, but over and on top of that, the icing on the cake is the credit card customers, the wealth management customers, the Suvidha corporates, the CitiPhone franchises they have, and the 3,600 employees. Now, obviously, we have not ascribed, you know, separate values to each one of them.
If you look at the simple math, a substantial portion of the value is coming from the credit card franchise. But, you know, there are a lot of these small intangibles which come with it because, you know, there is, you know, they've run this business for 120 years. The franchise is one of the best that exists in the country. From that perspective, it's a combination of these six, seven factors which has led us to kind of bid for this business.
Perfect. Thanks a lot. This INR 27,000 crores includes the Citicorp Finance?
Yes. Yes, it includes.
The ABF is the Citicorp Finance, is it?
Yes, absolutely right. The INR 27,000 crore includes the credit cards outstanding also.
Okay. Perfect, sir. Thanks a lot and best of luck.
Thank you, Mahesh.
Thank you. The next question is from the line of Saurabh from JP Morgan. Please go ahead.
Yes. Just one question. So on slide 15, is there a reason why the OpEx to revenue or OpEx to assets for Citi is so much higher? Like 57% cost to income.
Yeah, yeah, you're right. 4.3% you're referring to, right?
Yes.
Saurabh, I think that is on the business as usual basis. What we have looked at is what would it be in the current cost structure. The leading thought I would leave with you is, it only presents an optimization opportunity over the longer term.
You know, there are some very obvious optimization of positives. This does not impact the 3,600 employees, actually. The optimization of positive here is the charges which are coming from other parts of Citi for supporting the business here. There are real positives in that, on that count.
Okay. Sir, Puneet just said INR 2,300 crores, it's a clean number, right? I mean the note two basically seems to suggest this is a clean operating cost, excluding all the Citi overheads.
It is operating cost excluding global, right?
Oh, understood. All right, sir. Thank you much.
Thank you. The next question is from the line of Anand Bhavnani from White Oak Capital. Please go ahead. Anand Bhavnani, your line is in talk mode. Please go ahead with your question. Mr. Bhavnani, please unmute your line from your side if muted. As there is no response from the current participant, we'll move on to the next question from the line of Nilang Mehta from HSBC. Please go ahead.
Yeah, thanks for taking my question. I just had a question considering pay scales of Axis and Citi would be different, so what kind of pay adjustments you might need to do at both ends. Has that been factored in your guide?
Obviously the Citibank, you know, pay scale, what they pay, how they pay, the benefits, et cetera, would be different. We haven't got into those details as yet. You know, when a merger and acquisition of this kind, that's one of the kind of important things which always happens. We believe that given how we have been able to create various elements within the Axis group itself and how we have created the Burgundy Private franchise, we have the flexibility to be able to manage it. At the same time ensure that the Citibank employees do not feel that, you know, when they come here, they will suffer over a period of time. Yes, we are fully aware there'll be differences.
We have nine months head start to be able to manage those differences, work with them and work with the employees to ensure that they are satisfied with whatever solutions we come up with because there are solutions around this. You know, everyone in every merger and acquisition you come across this problem. Since we are so clear in our minds that we want the employees, we will obviously find the right solutions to ensure that employees stay with us.
Amitabh, just on this point, considering Axis employees, so obviously you looking to retain Citi employees, but on the Axis employee side, do you see what kind of challenges here?
Yes, I mean, you know, when we do anything of this nature, because it's not only just the Citibank employees, we have to be thinking of the Axis Bank employees also. Over a period of time in the long run, you know, depending on the quality, capability, the talent pool, either they will converge or some differences will always remain. We believe that the quality of talent pool in Citibank is really solid. I'm not saying that means that Axis Bank talent pool is not solid, but Citibank pool is solid. Not only they will get an opportunity to work in the businesses they're already working in, but potentially they can look at working in other parts of Axis franchise. We are not far off.
I don't think Citibank, while you know that this is an assumption all of us make, I don't think Citibank stands out in terms of, you know, salaries which they give to their employees. It's not an outlier. We also, when we do our salary surveys and look at, you know, what increments we do and how do we equate people across the industry, we look at who are the banks to who we lose people to, and Citibank is one of the banks we look at when we do our regression comparisons. You might think that the differences are large. The differences are not as big as you know, the perception might be.
Sure. That's very helpful, Amitabh. Thank you. Just last question on the loan book. Would you be able to share average duration of the loan book in terms of years, ex-mortgage, if possible?
[audio distortion] e x-mortgage it is 28 months. If you remove the card it is about 18,000. You have ABF, which is average of about 20-25 months. Personal loan, which is about six months. Mortgage which is longer than that, so it's average about 28 for non-mortgage.
Thank you so much. Best of luck.
Thank you.
Thank you. The next question is from the line of Pankaj Agarwal from Ambit Capital. Please go ahead.
Yeah, hi. Am I audible? Am I audible?
Yes.
Yes, you are.
Yeah. Just to clarify, you are getting only loans and deposits as part of the deal, not the cash and government securities on Citi's balance sheet.
Just want to clarify that we are getting a matched balance sheet, which is deposits on the liability side, loan assets on the asset side, and the differential will come to us in the form of cash. It is a fully balanced balance sheet for which we are paying a purchase price.
Okay. What it means is that if INR 50,000 crore are deposits and 27 is your advances, right? Remaining 23 will come in the form of cash and government securities, right?
It will come in the form of liquid assets. That's correct.
Okay. Okay. Second, can the retention of salary accounts could be a challenge if Citi is retaining the corporate relationships?
Thanks for that question. We also have a very robust salary program. It's been running for many years now. We find the Citi franchise of the Suvidha Salary as complementing what we offer. Therefore, we do not envisage you know, the customers g etting anything less than what they are getting today. In fact, we will be probably better off in terms of engaging them with a wider range of product suite. Therefore, we feel that the salary franchise is a great addition to the Axis family.
Let me just add, the individual retail accounts will come to us. Nothing will remain in Citi. You know, they might retain the corporate relationship, but they, you know, the individual salary account will come to us. By the way, we also have standard non-compete agreement in place with Citi on each of the products or each of the services we are buying as part of this acquisition, which is gonna be there for a reasonable period of time. Even if I'm a salary account holder with Citibank, even though Citibank might have a corporate relationship, that account, based on, obviously, consent, will shift to Axis. Citibank cannot offer a savings account relationship to that customer. I hope that clarifies.
Yeah, normally, you know, the corporates, you know, they open the salary accounts with the banks who offer-
No. Citibank cannot do it. Just please listen to what I'm saying. Salary, Citibank cannot offer a savings account relationship to anyone.
Okay.
In retail. As far as retail is concerned. You understand? I mean, if even if let's say there was a corporate X which says that, "No, I want to open a salary account with Citibank," Citibank, as per the non-compete agreement, cannot open a savings account for a employee of that company. Post-closing, yes, of course. Okay? I just want to clarify. I hope you got it there.
Thank you.
Thank you.
Thank you. The next question is from the line of Sameer Bhise from JM Financial. Please go ahead.
Hi, thanks for the opportunity, and congrats on the transaction. Just wanted to pick your brains on a make versus buy decision and what actually swung the needle towards this one. If you could give some sense there.
A couple of ways to look at it. One is, you know, when you look at a certain franchise, you do your math, you look at what the value of the franchise is in terms of business that brings to the table, and you ascribe a certain value to it, looking at, you know, what money you can make out of that business over a period of time. That's one way to look at it. That's how we build our models, that's how we value the certain franchise, and we bid for some value.
Citi liked it, and here we are. Second way, if you want to kind of add things to it, is that this is an enviable, you know, consumer business bank, consumer business franchise in the country, period. The kind of customers it has across its various products and portfolios. The customers have how long the customers have stayed with them, how much money they spend with them, and so on and so forth. You will get an opportunity.
This gives us an opportunity to catapult ourselves to a completely different position, and it speaks so well to our GPS strategy on granular, you know, retail franchise and a premium retail franchise. Opportunities like this come, as I was telling someone, once in a lifetime. There is no other business like this which is gonna get sold in this country for a long, long period of time. One is you ascribe a certain value. Secondly, it gives you the possibility to catapult yourself, and come closer to the peers, and compete with them even more effectively. When you look at make versus buy, it's not that our making has stopped.
Our making will continue. It just allows us to pivot our franchise to even faster to where we want to be and pay the right kind of value to get there. That's all we're trying to do. That's why this transaction makes so much sense for us, and we have explained to you what are the five, six things that you saw in the transaction which made us bid for this in the first place.
Right. Yeah.
Just a second. Rajiv also wants to add to that.
Yeah.
What we've got here is the entire franchise, the retail banking franchise of Citibank. Yes, you could make credit cards. I think we did about 270,000 cards in February. But what comes together here is the customer, the relationship manager, CitiPhone banking, and the ops to support the whole thing. In each of these pieces we've got, we are getting very, very experienced people who have been serving these customers, who have worked together, who've got excellent processes. To put that together would obviously take a lot of time. Here is an experienced team that is coming to us.
Not only will we be able to serve the existing customer base of Citibank that's coming to us, but we will use these skills and capabilities to enhance our own capabilities to be able to deliver a differentiated proposition even to our own customers. That's the additional synergy that we could potentially get. It's not a product that we are buying, it's the franchise that we are buying. Because of the fact that it's all coming together is really where the value is.
Right. This is helpful. Just wanted to ask the profits generated over the next nine-12 months. I presume they sit within the business itself, and you have access to those when it closes.
I think, like all transactions of this nature, the business risks and the business benefits pre-closing date sit with Citibank and CFIL.
Okay.
Post-closing date and sit with us.
Finally, just one small bit. I mean, around INR 1,200 crores kind of servicing charges to be paid to Citi looks slightly on the higher side, given that probably even in a normalized year, they won't have made that much money on the franchise.
I think the way I would request you to think about it is, like Rajiv said earlier, it is a business purchase. It is a running business. We want to be extremely cautious about any impacts to the customer for short-term cost decisions. We have made a conscious choice to continue to make sure that both customer and employee transition is smoothest. As part of that process, it, if it means working with Citi to deliver that to the customer, we have chosen to do that. We think it is requisite expense to pay currently. Once the business is transitioned, like we have said, this cost disappears.
Sure. This is helpful and all the best to you as you close this transaction. Thank you so much.
Thank you. The next question is from the line of Nilanjan Karfa from Nomura. Please go ahead.
Hi. Thanks. Good evening. I hope I'm audible. You know, there's a lot of discussion that has taken place on attrition. I just wanted to understand two things. One, since this deal has been in talks for quite some time, and whether it is Axis or any other bank, would it be fair to assume the kind of attrition this business has seen, let's say, in the last nine months? If the Axis, you know, model is in lower attrition than what the business has seen in the last nine months. That's question one. Second, you know, these are the times when peer banks will basically attack and take away customers.
How do you know, introduce conditions or chat with customers to ensure that, you know, there is less attrition? So that's second. The third is, could you talk about the overlap between deposits and the total wealth AUM? That's the third one.
Okay. You talked about attrition. You know, in a deal of this nature, it is pretty much a given that competition will try to come after the existing customers of the seller, and in some cases, the customers might also be jittery in terms of shifting from our brand to another brand. As I've shared earlier, we have done our intensive research to look at some of these very aspects, to look at the differences between various product categories and try to see what we need to do and how we need to go about it to ensure that, I mean, we don't lose customers because the customers will leave or because competition comes in and is able to take away the customers.
That exercise will actually in all intensity start now, because we do not have full view of each of the customers of Citibank. When we compare the data between June and December, for example, and the fact that Citibank announced the sale of their assets in 15 markets quite some time back, they've been running this process. There's been a lot of media news around, you know, who's buying, who's selling. The attrition in terms of customers and some of the numbers has nothing to be alarmed about. Yes, we are going through a great resignation where employees are also leaving, but that's happening to everyone. It is not just unique to Citi, it is not unique to Axis, it is happening to everyone.
In this, with all these variables, we will use this head start we have got for next six-nine months to ensure that we can put mechanisms in place, talk to the employees and ensure that most of them come to us. We will use the opportunity to meet specific customer categories or customers of Citibank to assure them that, with Axis they will get more, not less. Hopefully a lot of them will stick around. By the way, as we've been stating again quite openly, a lot of the senior people working in Axis are from Citi. They understand Citibank customers, they understand what it will take to kind of potentially get there. So it is something we have to work on. It is not a trivial thing, but we don't. I mean, it's not a mathematical formula either.
We have to work at it. We obviously have some integration plans in place. We know we already have decided what we need to do over the next couple of months, next six months and then nine months. We obviously need to flesh it out, which we will in the next 15-30 days or so. You had another question on. There was no question. You had the third question was?
Wealth AUM and deposits.
We do not have the full idea what the overlap is. Our surveys have shown to us what that potential overlap could be. Obviously, we do not intend to share in that call because the data is not concrete. The data is based on some assumptions. Let me just assure you that we believe that the addition to the Axis franchise because of these customers will be significant.
Okay, the final question to Puneet.
By the way, just remember, I just want to leave with one last thought with you that as we again pointed out, if we do lose customers between June and the LD1 date, there is a mechanism in place where the price does get adjusted. Just be aware of that. Yeah, go ahead.
Actually, sorry. Yeah, Puneet, up to what you just mentioned. The onus will be on Citi to ensure that they deliver what they're selling?
I mean, yeah. I mean, the onus is not on them, but if they don't deliver it then they will see a reduction in price, right? They are fully incentivized to ensure that the customers do come to us. We are fully incentivized because we are not buying this to pay low value. We are buying this to get the customers and that franchise. Both the parties interests are aligned here. Because interests are aligned, we do believe that hopefully we can execute well. It will make it a success.
Okay. No, that's fair. Puneet specifically, on the INR 1,500 crore of integration cost, that runs till September 2024 roughly, is it?
It runs for two financial years post-closing.
Post-closing. [audio distortion]
It's not a pre-closing cost.
Thank you.
Thank you.
Thank you. The next question is from the line of Abhishek Murarka from HSBC. Please go ahead.
Yeah. Hi, good evening, everyone, and congratulations for the deal. A few questions on costs. One, this cost synergy that you're talking about, 30%-40% reduction from this INR 2,300 crore, what would be the key drivers of this? I know you said charges coming from other parts of Citi, but if you can elaborate a little bit on this.
Abhishek, thank you for the question. Look, I think where we would like to leave the response on cost synergies is we do believe M&A transactions of this nature do result in cost synergies. I don't want to leave an impression saying the cost synergies is going to come on account of people. We look forward to welcoming the Citi team into the Axis franchise. We just think scale improves the jaw of any business. That's one key driver of synergy. Global overhead is another key driver of synergy, as we see it.
Leveraging some of the Axis channels to improve the cross-sell potential at lower acquisition cost is potentially a third bucket of synergy. There are many buckets of cost synergy that we've identified. We'd just like to leave this at a headline level to say that the number is what we think we should be able to achieve.
Okay. Because, Puneet, most of what you mentioned, cross-sell or up-sell, all of that is on the revenue side, right? On the cost side, it's probably going to be, as you had mentioned, infrastructure technology, but it's not very clear where.
Abhishek, maybe I can give you one example of when I say cross-sell, up-sell. Cross-sell, up-sell has a revenue aspect, and then it has a sourcing cost impact. If I'm able to sell an existing Axis product to a Citi customer, it becomes what we have always called an ETB sale, an existing to bank sale. And o bviously, the ETB sale cost is very different from a market sourced sales cost. That was the direction I was leading you for cross-sell, up-sell.
Sure. This INR 2,300, you know, BAU kind of cost estimate, approximately what would be the breakup between, let's say, salary costs and other OpEx? Just a ballpark will be helpful.
Abhishek, we are not in a position to share that number today. We'd just like to leave the cost number as the total cost number, if you permit us. When we do have more details that we are willing and able to share, we would be happy to come back and share that with you.
Sure. Would it be possible to get an idea of what would be the overlap of your, you know, of the Citi card customers with other lenders? How many other lenders would they have cards with? Something of that sort.
As we shared earlier, boss, we have done a survey which gave us some idea, but it is based on a survey, and that obviously cannot be accurate because it is based on interviews which have been done with customers across the Citi franchise. As I said in just an answer some time back, that it appears to us that the addition to the Axis franchise in terms of both the quantity and quality out of the total Citi numbers which I shared with you will be significant. Sanjeev, you want to add? Please. Sanjeev heads our credit card business.
To give some flavor, obviously there is no data which has been accessed to figure out customers on either sides. Just two, three areas why we believe the deal is complementary on the card side. One, Citi's strength, all their branches in the entire distribution was in the top eight markets.
Right.
Axis card portfolio, if you study it outside the top 8, outside the top 20, outside the top 50, we have very, very significant strength in deeper geographies. That's one area where we believe the portfolios are largely complementary. Second is in terms of customer segment. Citi portfolio is very significantly focused on affluent plus super affluent portfolio.
Axis portfolio starts actually from reasonably what I would call as mass and mass affluent segment, and there are obviously we have close to 10%, 11% of our portfolio which is affluent by card. But by segment, our portfolio is definitely focused more on mass and mass affluent segments. With these two things which we understand fairly clearly, some parts that we understand because many of us do come from Citi. Second, what our portfolio we understand well, we believe the deals and the portfolio customer segments are significantly complementary. There is no data available, obviously, right now to comment on how much is the overlap or non-overlap between Citi and Axis. Too, definitely there is no data on how much of Citi portfolio overlapping with, let's say, an HDFC or an ICICI. No data available on this at all.
Okay. Okay. Perfect. That helps. Lastly, just a very quick question. You mentioned customer consent as one part of the pre-closing activity.
Just a second. Just one point. We also have. This was a customer segment level. Then there is one product which is common between us and Citi. Both of us have a IOC co-brand. Citi has had it historically for many years. We closed our deal with IOC now close to three years back. Our deal with IOC was outside the top eight markets. We were not allowed to access the top eight markets because those were kept for Citi.
With this deal opening up, obviously the entire IOC portfolio and the franchise opens up for us, so we get access to wider distribution. Our distribution now comes to play for using the IOC petrol pumps in the top eight market. It's not only petrol pumps, it's a very valuable proposition which a lot of customers find, particularly when fuel prices keep going up. That's on the product side of it. Yeah. Go ahead, sorry. You had something else as well.
Yeah. Thanks for that. Finally, I mean, just had a very small question. In pre-closing activities on slide 16, you mentioned customer consent. I just wanted to know, you have to take consent of all customers, meaning all deposit customers and asset customers, or is there a quorum, you know, for which you have to take it? How does it work?
That's right. This is Subrat. We will need to take customer consent, and we will use the period between the signing and the closing in order to get the customer consent. There is a consent architecture that we have agreed upon as part of, you know, the transaction. This will be put into play in the course of the next nine months. We also have, you know, the ability to track these consents at individual customer level, and we believe that there are multiple channels through which we'll be able to get this customer consent, whether it is the internet bank, the mobile banking platform, the branches. All of that will be in play in order to get the consent based on the existing contracts that we are taking over across the various products that Citibank has.
It has to be 100% coverage of customers.
Yeah. We will have to get all the customers covered. Like I said, there is an architecture for doing this, and the architecture is linked to the existing terms and conditions of the contract that we have. All of it will not go through the same consent process. Some of them will be express consent, some of them will be activity-based consent, some of them will be assigned. This is, you know, in some sense, horses for courses kind of a policy, depending on what kind of contracts that the customers have with Citibank at this point in time.
Okay. Perfect. Everyone, thanks so much and all the best for the deal. Thank you.
Thank you. Ladies and gentlemen, we will take the last question from the line of Dhaval Gada from DSP Mutual Fund. Please go ahead.
Yeah. Hi. Congratulations for the transaction. I had, you know, a few questions. Just starting with that INR 842 crore, you know, pro forma number that you shared. Is it on 25.2% tax rate? That's the first question.
Yes. The response to that question is yes, it is in tax rates.
Okay. Got it. The second question was in terms of the you know so I understand that Citi SA rate cost is lower than what Axis Bank offers. So the additional impact would be about INR 200 crore-INR 250 crores in that ballpark in that range?
We are not calling that number out, but yes, directionally, Citi SAR rates are lower than our SAR rates and under the extant regulations, all SAR customers have to be priced at the same rate, which we believe is an attractive retention tool for Citi customers.
Got it. The follow-up question was, so if you look at your guidance on cost, which you expect, you know, 30%-40% saving in two years post-completion, so that would result to about, you know, if you take the midpoint about INR 800 crore of cost saving on the current number, and if you assume INR 200 crore on ex-extra SA rate cost, broadly, we sort of end up and the extra tax impact. Broadly, the book should be about a 2%+ ROA business, excluding the INR 1,500 crore one-time cost which you'll have.
I think the way I would request to respond to that question is, like we don't guide for our own business, we wouldn't want to offer forward-looking guidance for the Citi franchise that comes over. I think you have the numbers between slide 15 and the synergy numbers we put out. We request you to make an independent assessment, but we don't have a guidance to offer at the moment. Thank you.
Got it. Just the last question is on the revenue synergies. In your assessment or the current assumption, would this, you know, sort of be more material in the second year onwards post-completion or it would take even longer? I mean, some sense in terms of when should we see the revenue synergies kick in in a material way?
Yeah, please ask.
I think the way I would request you to kindly think about this is, in the early part of the call, we called out the fact that we have an attrition assumption on the business. There is a growth assumption. There will be growth that will offset the attrition. There is revenue synergy. All in all, those are the three variables that we factored from a valuation perspective. Synergies on transactions of this nature, which are complex on integration, do take time to realize, is what I would say currently.
Got it. Thanks and all the best. Thank you.
Thank you. I now hand the conference over to Mr. Rajiv Anand for closing comments. Thank you, and over to you, sir.
Thank you, ladies and gentlemen, for your interest in Axis Bank and the transaction. As one of our directors mentioned today, this is really a watershed moment for Axis Bank, being able to invite into our family the Citibank customer and our new colleagues from Citibank. It gives us access to a large and affluent, profitable consumer franchise. It gives us access to stable, granular deposits with deep salary relationships.
We've made significant progress in our affluent business through Burgundy, and this is a natural fit to our strong wealth management franchise, Burgundy, to be able to accelerate our growth expectations. It gives us access to an experienced leadership and diverse talent pool across relationship management, operations, and phone banking. As we've discussed over the last one hour, significant potential for revenue and cost synergies. We are excited to be able to close this transaction today, subject of course to regulatory approvals. Thank you, ladies and gentlemen.
On behalf of Axis Bank, thank you for joining us. You may now disconnect your lines.