Analysis: Here's how Axis Bank will gain from acquisition of Citibank's consumer biz

Axis Bank, the third-largest private sector lender, on Wednesday announced the acquisition of Citibank's consumer business, covering loans, credit cards, wealth management and retail banking operations, in India for Rs 12,325 crore. The deal also includes sale of consumer business of Citi's non-banking finance company, Citicorp Finance (India) Ltd, which comprises of commercial vehicle, construction equipment loans, among others. 

The proposed transaction will add around 7 per cent to Axis Bank's bank's deposit base and 4 per cent to its advances. Besides, there are five areas where Axis Bank will certainly extract maximum value from Citibank's consumer banking acquisition. Let's take a look:
 
Potential to increase share in retail banking 

Axis Bank is predominantly a retail bank with 55 per cent of its advances in retail assets. Its retail banking portfolio will get a further push with acquisition of Citi's consumer banking business. The entire portfolio will be added to the bank's consumer banking business. Unlike corporate banking, retail business is more stable in terms of diversification, lower non-performing assets (NPAs) and higher returns. 

"This will give some fillip to our retail assets. But those (Citi's) retail assets were not growing. We believe that once these customers migrate to Axis, we can become the primary provider to them. We have a larger geographical reach and width of products and offerings," says Axis Bank MD and CEO Amitabh Chaudhry. 
 
High yielding credit card portfolio 
 
The acquisition also pushes Axis Bank amongst the top three card players in terms of outstanding receivables. In terms of number of cards, the private bank with over 1.1 crore card holders will be at fourth position. Currently, the top three players are HDFC Bank, SBI Cards and ICICI Bank. Axis Bank claims that its cards balance sheet will grow by 57 per cent as it gets an additional 25 lakh Citibank cards. The credit card portfolio of salaried and high-net-worth individuals will certainly bring high yield to the bank's retail portfolio. 
  
Unsecured loans and higher yields 
 
The bank's unsecured loans portfolio was at around 15 per cent in the retail segment, including personal loans (11 per cent) and cards (4 per cent), as on December 2021. The share of unsecured loan component, especially credit card and personal loans, will now increase, though the bank has not given any number. Unsecured loans are generally high yielding because of higher interest rates. 

Also Read: Axis Bank acquires Citi's India consumer business for Rs 12,325 cr

"The total amount of loan (acquired) is around Rs 27,000 crore which includes credit card and mortgages. The unsecured amount is not very large as compared to our retail franchise," says Chaudhry. 
 
Opportunity to cross-sell products 
 
There is a huge opportunity to cross-sell other banking products to Citi's 30 lakh customers in the top cities. Citi customers are known to be high-end. The bank will also gain access to seven offices, 21 branches and 499 ATMs across 18 cities. This will help in growing its wealth management business. Axis Bank's assets under management stood at Rs 2,66,675 crore as on December 31, 2021. 
 
Higher low-cost CASA deposits 
 
Citibank customers will also help Axis Bank in maintaining a higher current account and savings account (CASA) ratio. Axis Bank's CASA ratio will improve to 47 per cent from around 45 per cent. This high CASA ratio will go a long way in improving the net interest margins.

The bank will also get over 1,600 Suvidha corporate relationships with more than 10 lakh customers and an average salary of Rs 70,000 per month. This will provide a good base of stable depositors. Axis Bank has already implemented a premiumisation strategy, focusing on improving account quality of overall balances while increasing contribution from the premium segment. The bank's premium segment includes private banking, burgundy, priority, prestige and NRIs. 

Also Read: Citibank customers can continue to avail rewards, privileges: Axis Bank MD