Axis Bank acquired Citibank’s India Consumer banking business on March 30. This will include credit cards, retail banking, wealth management, and consumer loans. The purchase will exclude Citi's Indian institutional client businesses. The buyout will cost $ 1.6 billion. Regulatory approvals for the deal are expected to be secured in nine months, following which Axis Bank will integrate Citi’s retail customers with its platform over the next 12-18 months. Axis Bank said that this deal will give the bank around 3 million unique customers which will help in enhancing its presence in “key identified growth segments”. Axis will also gain access to seven offices, 21 branches, and 499 ATMs across 18 cities. Axis will also have 3,600 employees of Citibank ensuring that they will get either similar or higher pay. Amitabh Chaudhry, MD & CEO of Axis Bank called it the ‘Deal of a lifetime. But what makes this deal so special?.... He believes that apart from improvement in the CASA ratio, net interest margin, and credit card market share, the deal would also give Axis Bank access to the premium set of high spending customers. The buyout will give Axis Bank access to the 2.5 million Citibank customer cards and it will result in an increase of almost 31% to its existing card base of Axis. Even the card spend market share is expected to grow by 480 basis points ~ 4.8%. Citibank enjoys one of the highest monthly spends per card due to a complimentary and quality portfolio with a size of almost ₹ 8,900 crores as of June 2021. The wealth management business of Axis Bank will also go up by 42% making it the 3rd largest wealth manager in the country. The combined CASA ratio will also improve by 200 basis points ~ 2% to 47% which will also help in increasing the Liquidity Coverage Ratio. However, this will not lead to an increase in the Net Interest Margin (NIM). The current NIM for Axis is 3.53%. To increase it to 4%, Axis believes that it will have to grow organically. Citi’s consumer lending portfolio of approximately Rs 18,500 crore consisting of mortgages, asset-backed finance, small business lending, and personal loans will also be transferred to Axis after the deal. Axis is not looking to raise any capital for this buyout. Instead, they are financing it from their balance sheet itself. However, going ahead depending on the credit demand and macro-economic conditions, the bank will look at raising capital. Customer Attrition would be another matter of concern for Axis Bank. On this, the MD said, “Obviously there is a risk that there could be customer attrition. We believe very strongly that Axis Bank has a bigger suite of products and services to offer to Citibank customers. Citibank was limited by branch presence, perks that it could offer, Axis Bank has much more to offer”. He also said that there is a certain price-adjusted mechanism in place in case the customer attrition rate goes beyond a certain number. However, some analysts believe that Axis has paid a relatively higher price given that Axis will not get access to Citi’s corporate segment. Do you think this is a ‘Once in a lifetime deal for Axis or did they pay a very high price? Thank you.
Very well explained 💯
ReplyDeleteIt’s quite astonishing that Citi has been acquired by an Indian bank. It’s indeed a great deal for Axis. Amazing explanation 💯
ReplyDeleteAmazingly covered all the points. Well Axis is looking for Card Business as well all know that how HDFC is one of the biggest user for credit card payments and few months back prohibition of cards distribution regulation imposed by RBI. I think Axis Bank will face many difficult to achieve that Target, so this amount of investing may be worth for them to make a scalable product with existed customer.
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