By R Guha and N Sheth, The Wall Street Journal

Tata Consultancy Services Ltd. said it will pay $505 million for the India-based back-office arm of Citigroup Inc., a sign of how Indian companies are seeking to snap up such assets as foreign banks raise funds amid the current financial tumult.

TCS is buying the entire 96.26% stake held by Citigroup in Citigroup Global Services Ltd. TCS is paying cash, according to a company statement. The deal is expected to be completed by year end.

Citigroup’s back-office operation has more 12,000 employees and expects to generate revenue of about $278 million in 2008, TCS said.

The purchase gives TCS a unit that can handle several operations a bank would need, such as loan processing, origination and cash management, said N. Chandrasekaran, chief operating officer and executive director. The company plans to market the office’s services to other financial institutions, he said.

Don Callahan, Citigroup’s chief administrative officer, said the deal will help Citigroup reduce operating expenses and allow the company to focus on its core financial-services operations.

As the global credit crisis deepens, some Wall Street banks have been shopping assets for quick cash. Cash-rich Indian technology companies are proving ready buyers, especially for back-office units that mesh with existing outsourcing operations. In September, India’s Wipro Ltd. and Copal Partners Ltd. signaled interest in Lehman Brothers Holdings Inc.’s back-office operations in India after the New York bank filed for bankruptcy-court protection. It was eventually sold to Tokyo-based Nomura Holdings Inc.

In the TCS-Citigroup deal, the Indian company said it will operate the office as a separate entity and retain the entire management. TCS said it received a $2.5 billion, nine-and-a-half-year technology-outsourcing contract from Citigroup, making it one of the Indian company’s top five customers.

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