With acquisition, Axis bank will gain access to six Citi offices, 21 branches and 499 ATMs across 18 cities in India. Image: Reuters
Private sector lender Axis Bank on Wednesday said it has completed the deal to acquire Citibank India’s consumer banking business for Rs 11,603 crore (approximately $1.4 billion), marginally lower in cost than what was announced in March 2022. This is due to the Citi-related attrition which would have been seen while deciding to shift banking operations and jobs to Axis Bank.
The transaction comprises the sale of the credit cards, retail banking, wealth management and consumer loans. With this acquisition, Axis Bank’s market share in the credit cards business will jump to 16.2 percent from 11.4 percent. This involves the addition of 1.8 million credit cards.
Axis Bank has 9.58 million credit cards, and it clocked about 1.95 crore transactions in volume (through PoS) for value of Rs 6,161 crore and another 1.29 crore volume (through online) for value of Rs 5,602 crore, according to RBI data for January 2023. It will gain access to six Citi offices, 21 branches and 499 ATMs across 18 cities in India.
Axis has, in the past, called this a “once in a lifetime” deal and Citibank’s customers “gold standard” as it seeks to narrow the retail banking gap between themselves and leaders such as HDFC Bank and ICICI Bank. It will take an additional 18 months to fully integrate the Citi businesses with itself. Citi will retain its institutional client business.
Analysts have called the deal to be fairly valued, but it still forms a small part of its overall retail banking franchise. “The main advantage for Axis is that it will be able to learn and replicate the best practices in its own business and help scale up further, whether it be addressing customer queries, complaints and offering the best product,” says Nitin Aggarwal, head of BFSI research at Motilal Oswal Institutional Equities.
Axis Bank now has aggregate deposits of Rs 8,881 billion, of which high proportion of current and savings account (CASA) is at 77 percent.
Besides boosting the credit card business, the deal will help Axis expand the wealth management business, with the combined AUM of wealth franchise expected to increase by Rs 947 billion. Axis Bank competes with foreign giants such as Julius Baer and Credit Suisse and domestic experts such as IIFL and Kotak Mahindra Bank in this segment.
Under CEO Amitabh Chaudhry’s leadership, Axis has, in the past 2-3 years, strengthened the bank’s balance sheet and profitability. In March 2022, its net profit rose to Rs 13,025 crore, a multi-fold jump from Rs 1,627 crore in FY20, and an even lower Rs 276 crore in FY18. Asset quality has also improved smartly in the past 3-4 years: Gross NPAs were at 2.38 percent (of total advances) in Q3FY23 compared to 3.44 percent in Q1FY23 and an even worse 6.77 percent FY18. This has boosted investor sentiment and the stock has risen about 15 percent in the past twelve months to Rs 864 at the BSE, as credit growth, asset quality and capital position of the bank has improved.
On April 15, 2021, Citigroup, the New York-headquartered $151 billion financial services company had announced its plan to exit the retail banking business in India as part of an ongoing strategic review of its business. Citibank had set foot in India 119 years ago when it started operations in then Calcutta, part of British India. A century later, the company had built a business covering some 2.9 million retail customers, 1.2 million bank accounts and 2.4 million credit card account holders. Also read: The science behind HDFC-HDFC Bank's mega merger
The company’s exit from India is part of the group’s plan under a new CEO to direct investments and resources to businesses in four key locations where it foresees huge scale and growth potential. That includes Singapore, Hong Kong, the UAE and London, and, as a result, it will exit its consumer banking business in 13 markets, including Australia, Bahrain, China, India, Indonesia, Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam.
Among all the retail banking businesses, home loans and loans against property have seen steady growth in recent months. Axis Bank’s main challenge will be to retain talent in the bank and motivating his employees.
Chaudhry said the bank is well capitalised and does not need to raise additional capital, to fund any current and future acquisitions. The bank will record the impact of the Citi deal in the current March-ending quarter.