Deal value to be re-assessed if attrition is higher: Axis Bank

Ever since Citibank announced its intention to exit the consumer business across markets, private lenders in India have been chipping away at its customer base. The global bank has consistently been losing customers and this has worried analysts and investors.

After Axis Bank negotiated the deal in June 2021, Citi has continued to lose customers. During a call with analysts on Wednesday, Axis Bank’s top management said the private lender had factored in a conservative attrition rate and that if the portfolio lost more customers, then the deal price would be renegotiated.

Addressing queries from analysts on the impact of sustained attrition on the deal value, Amitabh Chaudhry, CEO of Axis Bank, said: “When assets get transferred to Axis on the LD1 date (9-12 months down the line), metrics will be looked at and purchase consideration will be assessed again based on assumptions made earlier.”

Both parties have agreed upon metrics whereby Axis will be protected if the attrition has been higher than what both the sides have budgeted for. The domestic lender has also put in place other guardrails to protect itself from any downside. Citi has agreed to a non-compete clause for the businesses it has sold to Axis Bank, which implies that till the clause is applicable, Citi cannot enter these businesses in India again.

If the attrition remains elevated, then the assumptions on profits will also be impacted. Axis Bank has assumed earnings of Rs 842 crore from the portfolio after it has been normalized, minus the global bank’s cost structure and pandemic-related credit costs. If rivals of Citibank continue to poach customers, the earnings estimates from the business would also be impacted.

Analysts also raised the red flag on a sharp spike in credit costs during calendar year 2021 compared to 2020. However, Axis Bank’s top management deflected the query by saying that the portfolio on the assets and liabilities side had held up.

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