Citi India's big challenge: Getting more value for Axis Bank's high-end customers

Citi India customers can finally bank with Axis Bank. One year after the big-ticket Axis Bank-Citi retail assets transaction was completed, the country’s third-largest private sector bank is finally integrating the foreign bank’s operations. So, what exactly is Axis Bank gaining from the deal in which rival lenders like HDFC Bank and Kotak Mahindra Bank had refused to outbid the price (Rs 11,603-crore) it paid for the assets? For context, the addition to Axis Bank’s deposits is less than 5 per cent. But another part of the deal grows Axis Bank’s credit cards portfolio by 20 per cent and private and wealth management assets by over 33 per cent, with the employee count growing by less than 4 per cent. These figures, though, only scratch the surface of the deal. So, what is the full picture?

Let’s analyse the value that these Citi businesses bring to the table. The Citi purchase is helping Axis Bank raise its low-cost current account and savings account (CASA) share of total deposits by 150 basis points—from 44.50 per cent to 46 per cent. The addition of Citi’s credit cards portfolio increases Axis Bank’ market share—from 11.4 per cent to 16.2 per cent. What is important is that Citi customers spend an average of Rs 2.03 lakh annually per card, compared to Rs 1.52 lakh by Axis customers. Then, the wealth management business of Citi brings in its affluent customer base of Citigold and Citi Priority customers, which has a vintage of more than a decade. The bulk of Citi’s clients are under 45, an ideal demographic because of the high lifetime value they represent. Lastly, the employee addition brings in high-quality Citi employees, who are trained in global best practices and would enhance Axis Bank’s client servicing abilities. What’s next? Clearly, there is huge potential for revenue generation across retail banking and also cost synergies. “This acquisition is a strategic fit in line with the bank’s ‘GPS’ strategy and its focus on premium segment growth. We have gained access to a large, affluent and profitable customer franchise that also aligns well with our premiumisation strategy,” said Amitabh Chaudhry, MD & CEO of Axis Bank, earlier this month. Four years ago, when Chaudhry landed at the bank, this former foreign banker with a stint in life insurance, came out with the ‘GPS’ strategy that was built on the broad pillars of growth, profitability and sustainability.

Chaudhry, now 57, has come a long way since then. Retail loans, regarded as safe and stable, have increased to 56 per cent of total advances from 49 per cent when he joined. Axis Bank’s asset quality has also improved, with net non-performing assets (NPAs) declining to 0.47 per cent from 2.36 per cent earlier. During this period, its net interest margins, an indicator of profitability, have increased to 4.26 per cent from 3.66 per cent. The share of low-cost CASA, however, remained a challenging area, with the share stagnating at 45 per cent of total deposits. 

Another area on Chaudhry’s radar was wealth management and private banking companies, where the bank was gradually building its ‘Burgundy’ brand. “The Citi deal should be seen from this perspective,” says an analyst at a domestic brokerage firm. The bank’s retail assets will certainly get a fillip because now it will have a ready customer base to cross-sell the bank’s full bouquet of products— from home loans to loans against property to auto loans, insurance and investments. In fact, Axis Bank is getting 21 strategically located branches in metro centres to attract new customers. The biggest gainer in the retail portfolio is the credit cards business, where Citi’s 2.5 million credit cards held by 2.1 million customers are getting added to its portfolio. The Citi book comes with one of the highest annual spends per card in the country. Currently, HDFC Bank, SBI Cards and ICICI Bank rule the credit cards market. “The acquisition will provide the opportunity to adopt global best practices in client servicing and operations through CitiPhone Banking,” said Subrat Mohanty, Group Executive-Banking Operations & Transformation, Axis Bank, earlier this month.

The CASA ratio rising to 46 per cent from 44.5 per cent will help Axis Bank better compete in retail banking. The addition to Axis Bank’s total deposits is around Rs 39,900 crore, of which 77 per cent comprises CASA deposits. The prize catch, however, are the 1,600-plus Suvidha corporate relationships. These would strengthen the bank’s salary business, as these deposits are sticky by nature and also stable. In fact, the Suvidha corporate relationships also offer good cross-selling opportunities for other banking products. Chaudhry’s GPS strategy is all about premiumisation. The bank is now gaining access to a large, affluent and profitable customer base, which fits well with its strategy of targeting high-end customers. There is a 33 per cent addition to the assets under management in Burgundy. The bank had launched Burgundy, its wealth management business, in 2014. 

Over the years, Burgundy Private has managed to get over 4,250 wealthy families under its belt. Here again, there is potential to cross-sell the bank’s products to Citi’s affluent customers. The total assets under management (AUM) of the wealth management business will go up to Rs 3,78,500 crore from `2,83,800 crore earlier. The wealth management business of Citi, with high net-worth clients across Citi gold Private, Citigold, Citi Priority and Citi Private Bank customers, would put the private bank on a much stronger footing. Lastly, Citi’s experienced retail team—from products to operations and risk management—will bring deep do main knowledge and create strong bench strength. After all, banking is all about people and services