IT major Tata Consultancy Services [Get Quote] on Wednesday said it will buy Citigroup Inc's India-based outsourcing arm for an all cash deal of around $505 million.

TCS has signed an agreement with Citigroup Inc to acquire all of Citi's interest in Citigroup Global Services Ltd, the company said in a release.

Citigroup Global Services Limited (CGSL) is the India-based captive business processing outsourcing arm of Citi.

In addition to the sale, Citi has also signed a $2.5-billion deal through which TCS will provide process outsourcing services to Citi and its affiliates over nine-and-a-half years. This will be provided through CGSL, the release said.

The acquisition broadens TCS's portfolio of end-to-end IT and BPO services in the global banking and financial services sector.

"This is a landmark acquisition for TCS, helping us not only acquire new capabilities in the banking domain but also underscoring the importance of our long-term, sustainable relationships with our large customers, including Citi," TCS CEO and managing director S Ramadorai said.

Citi's chief administrative officer Don Callahan said that the transaction would benefit Citi, its customers, employees and TCS.

"Our customers require access to increasingly complex processing solutions and this relationship will achieve a 'best-in-class' technology model that capitalises on both CGSL's expertise in financial services and TCS' expertise in process optimisation," Callahan said.

CGSL is one of the largest providers of BPO services within the banking and financial services sector, providing end-to-end process management across this spectrum and a broad array of services to Citi's consumers, corporate and global wealth management businesses globally.

It employs more than 12,000 employees in India and expects to generate revenues of around $278 million in 2008, the release said.