Why Axis Bank Acquired Citi India’s Consumer Business

After six months of gruelling negotiations, Axis Bank—the country’s third-largest bank—has clinched the Citi India consumer banking deal, beating half a dozen other big institutions. The acquisition cost of Citi’s loan book, worth at least $3.5 billion, is approximately $1.6 billion, far less than the speculated $2 billion. Indeed, valuation was the vexing issue that kept many banks away. But Axis Bank, which has ambitious plans to grow the business, stayed put. Citi’s consumer business is not large. It is going to contribute only 7 per cent to the Axis deposit base and 4 per cent to its advances, but the deal will power the bank’s retail banking business. Axis Bank is predominantly a retail bank with 55 per cent of its advances in retail assets. Amitabh Chaudhry, MD & CEO of Axis Bank, acknowledges that the buyout will give some fillip to the bank’s retail assets. Citi’s retail assets have been on the decline ever since new CEO Jane Fraser took over in March 2021 and decided to exit from its consumer franchises in 13 markets including India. “ 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 Chaudhry.

The ultimate catch is the high yielding credit card portfolio where Axis was a bit of a laggard. The acquisition has catapulted the bank to the top three card players in terms of outstanding receivables. In terms of the number of cards, Axis, with 11.15 million-plus cardholders, will be in the fourth position. Currently, the top three players are HDFC Bank, SBI Cards and ICICI Bank. Axis claims that its credit cards balance sheet will grow by 57 per cent with an additional 2.5 million cards from Citi. The bank is also getting the high end current and savings account customers. The current CASA ratio of Axis Bank will improve from around 45 per cent to 47 per cent. This high CASA ratio, which are low-cost stable funds, will go a long way in improving the net interest margins. The bank will be getting 1,600-plus Suvidha corporate relationships with more than 1 million customers. This will provide a good base of stable depositors.

It’s not all fun and games, though. The biggest challenge is to retain the Citi customers as they are already fleeing the bank. “This is likely to entail several operational changes such as revamp of customer services, better tech integration, etc. This also calls for an overhaul in management approach and whether Axis Bank can emerge as a natural banker-of-choice for this superior customer profile,” says Krishnan ASV, Institutional Research Analyst, HDFC Securities. Axis has got a clause inserted in the deal. If the customer base shrinks or business suffers, the bank would pay a discounted price.

@anandadhikari