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Axis Bank has agreed to buy Citibank’s consumer business in India for 12,325 crore ($1.6 billion). Mint examines what the deal means for Citibank’s existing customers and if it makes sense for Axis to shell out this much money.

What happens to Citi’s customers?

In April 2021, Citi had decided to exit consumer businesses in 13 countries including India, to focus on four wealth centres: Singapore, Hong Kong, the UAE, and London. Since the announcement, it has lost over 56,000 credit card customers. Axis Bank will make all efforts to retain Citi’s customers, hoping to prop up its average card spends. Axis Bank said Citi’s customers would have even better offers and access to wider set of services than what they get at present. Citi’s customers also had access to its prompt customer service and since the Citi phone banking services are also part of the deal, they can hope to get similar benefits at Axis.

Where will the entity stand among peers?

Even after this deal, Axis Bank would still remain the third-largest private sector bank with loans of 6.9 trillion, trailing HDFC Bank and ICICI Bank. The bank said it would be among the top three card players in terms of assets under management (AUM), although it would remain fourth if the number of cards are taken into account. As of February, Citibank had 2.5 million credit cards and Axis Bank 8.6 million, taking the total to 11.1 million after the consolidation. To be sure, the deal would close after 9-12 months from now, and these assumptions on standings are subject to changes.

After merger
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After merger

What does Axis Bank get from the deal?

Axis will get access to Citi’s 3 million customers, including 2.5 million credit card users with receivables of 8,900 crore. Deposits would rise by 50,200 crore and loans of 18,500 crore in mortgages and asset-backed finance would get added. Citi’s private banking and wealth management products with 1.1 trillion in AUM will also come under its fold.

How much will Axis pay for the deal?

Apart from 12,325 crore to be paid to Citi after the regulatory nods are in place, Axis Bank will also bear 1,500 crore as integration costs, 80% of which will be paid to Citi. It will also need to invest capital worth 3,500 crore in lieu of the new assets it will add to the book. The acquisition will have a 250 basis points (bps) impact on the bank’s capital, comprising 180 bps from the acquisition, 50 bps from the additional capital requirement and 20 bps towards integration. While being seen as expensive, it’s expected to bolster Axis’ retail portfolio.

What are some of the risks involved?

The primary risk is from the churn in Citi’s portfolio and staff. Axis has indicated that the deal has clawback arrangements if the churn is greater than what was factored into the pricing. According to analysts at Macquarie Research, over the last four years, Citi’s spends per card has shrunk to 14,000, from 16,000 earlier. Still, it is above the industry average of 12,000 and Axis Bank’s 9,000. There is also a fear that perception of Citi’s brand in comparison to Axis could lead to higher exit of customers, analysts at Kotak Institutional Equities said.

 

 

 

 

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