What the Axis deal means for Citi customers

Axis Bank has agreed to buy Citibank’s consumer operations in India for 12,325 crore ($ 1.6 billion). Mint is investigating what the deal means for Citibank’s existing customers and whether it makes sense for Axis to spend this much money.

What happens to Citi’s customers?

By April 2021, Citi had decided to leave consumer companies in 13 countries, including India, to focus on four prosperity centers: Singapore, Hong Kong, the United Arab Emirates and London. Since the announcement, it has lost over 56,000 credit card customers. Axis Bank will do everything in its power to retain Citi’s customers, hoping to support its average card spending. Axis Bank said that Citi’s customers would have even better offers and access to a wider range of services than they currently receive. Citi’s customers also had access to its fast customer service and since Citi’s telephone banking services are also part of the deal, they can hope to receive similar benefits from Axis.

Where will the unit stand among peers?

Even after this deal, Axis Bank would still remain the third largest private sector bank with loans on 6.9 trillion, after 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 is taken into account. In February, Citibank had 2.5 million credit cards and Axis Bank 8.6 million, which brings the total to 11.1 million after consolidation. To be sure, the deal would close after 9-12 months from now, and these assumptions about position can be changed.

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After merging

What does Axis Bank get from the deal?

Axis will have access to Citi’s 3 million customers, including 2.5 million credit card users with receivables SEK 8,900 million. Deposits would increase by 50,200 crore and the loans on 18,500 crore in mortgages and asset-backed financing would be added. Citis private banking and wealth management products with 1.1 trillion in AUM will also fall under its trap.

How much will Axis pay for the deal?

except 12,325 crore to be paid to Citi after regulatory nods are in place, Axis Bank will also bear 1,500 crore as integration costs, of which 80% will be paid to Citi. It will also need to invest capital worth 3,500 crore instead of the new assets that it will add to the book. The acquisition will have an effect of 250 basis points (bps) on the bank’s capital, which includes 180 basis points from the acquisition, 50 basis points from the additional capital requirement and 20 basis points for integration. Although seen as expensive, it is expected to strengthen Axis’ retail portfolio.

What are some of the risks?

The primary risk is the departure of Citi’s portfolio and staff. Axis has indicated that the deal has clawback arrangements if the churn is larger than what was included in the pricing. According to analysts at Macquarie Research, Citi’s spending per card has declined over the past four years 14,000, from 16,000 previously. Still, it is above the industry average of 12,000 and Axis Banks 9,000. There is also a fear that the perception of Citi’s brand in comparison with Axis may lead to a higher exit of customers, said analysts at Kotak Institutional Equities.

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