CRISIL Ratings has reaffirmed its 'CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+' ratings on the debt instruments of Axis Bank Limited (Axis Bank).
On March 30, 2022, Axis Bank and Citibank announced that their respective Boards of Directors have approved the acquisition of Citibank's consumer businesses (credit cards, retail banking, wealth management, asset backed financing and consumer loans) in India by Axis Bank. Axis Bank will pay a consideration of up to Rs 12,325 crore to Citibank for the acquisition.
Axis Bank has entered into a definitive agreement with Citibank and the proposed acquisition is subject to necessary regulatory approvals. Through this transaction, Axis Bank will get access to around 30 lakh unique customers of Citibank. The deal is expected to enhance Axis Bank's position in wealth and private banking business and also increase the market share in cards space. Addition of Citibank's deposit franchise is expected to result in ~200 basis points rise in current and savings account (CASA) for Axis Bank and the lending business will further add granularity on the asset side.
However, during the transition phase of 18 months, behavior of Citibank portfolio will remain a monitorable. Further, ability to retain around 3,600 employees of Citibank and manage the post integration process will be a crucial element for the realisation of synergies going ahead.
While the deal is expected to be funded entirely through internal sources, and consequently will have an impact on capital adequacy ratio (CAR) of Axis Bank, capital level is still expected to remain healthy with overall CAR at ~ 16% and well above the regulatory requirement.
The ratings on the debt instruments on Axis Bank remain unaffected by this development. CRISIL Ratings will continue to monitor the progress on the announced transaction.
The overall ratings continue to reflect the bank's strong capitalisation and strong market position and comfortable resource profile. These strengths are partly tempered by the average asset quality.
Supported by regular equity capital raised via qualified institutional placements (QIP) and improved cash accrual, the capital ratios of Axis Bank have improved, as reflected in Tier 1 and overall capital to risk-weighted adequacy ratio of 16.46% and 18.72%, respectively, as on December 31, 2021 as against 16.48% and 19.31% a year earlier (16.47% and 19.12%, respectively, as on March 31, 2021). Rating on the Tier I bonds (Under Basel III) is as per the criteria for these instruments.
In line with the measures announced by the Reserve Bank of India (RBI) for the Covid-19 pandemic, Axis Bank had given moratorium to borrowers. Though collections declined during the initial months of the moratorium, they have inched up since then. However, the second wave of the pandemic led to intermittent lockdowns and localised restrictions, again impacting collections. Although the impact has been moderate compared to fiscal 2021, CRISIL Ratings believes any change in the payment discipline of borrowers may affect delinquency levels.
The bank has restructured micro, small and medium enterprise loans totaling to around 0.12% of gross advances as on December 31, 2021, under the various schemes announced by the RBI. Further, pursuant to RBI's August 2020 resolution framework 1.0 and May 2021 resolution framework 2.0, restructuring under Covid-19 schemes stands at around 0.63% of gross advances as on December 31, 2021. Nevertheless, ability of the bank to manage collections and asset quality, given the current macro-economic environment, will be a key monitorable.
Shares of Axis Bank Limited was last trading in BSE at Rs. 792.05 as compared to the previous close of Rs. 773.60. The total number of shares traded during the day was 232772 in over 8079 trades.
The stock hit an intraday high of Rs. 795.00 and intraday low of 769.35. The net turnover during the day was Rs. 183163968.00.