Axis Bank has agreed to buy Citibank’s consumer business in India for 12,325 million (1.6 billion dollars). Mint investigates what the plan means for existing Citibank customers and whether it makes sense for Axis to offer this much money.

What happens to Citi customers?

In April 2021, Citi had decided to exit consumer trading in 13 countries including India, to focus on four wealth centers: Singapore, Hong Kong, UAE and London. Since the announcement, it has lost more than 56,000 credit card customers. Axis Bank will make every effort to retain Citi customers, hoping to increase its average card usage. Axis Bank said Citi customers will have better offers and access to more services than they currently get. Citi customers also got its fast customer service and since Citi mobile banking is also part of the deal, they can hope to get the same benefits at Axis.

Where will the vessel stand among its peers?

Even after this agreement, Axis Bank would still remain the third largest private sector bank with loans of 6.9 trillion, followed by 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. As of February, Citibank had 2.5 million credit cards and Axis Bank 8.6 million, bringing the total to 11.1 million cards after the merger. In fact, the deal would close in 9-12 months from now, and these thoughts on the position may change.

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What? What does Axis Bank get from the deal?

Axis will have access to Citi’s 3 million customers, including 2.5 million credit and debit card users 8,900 million. Deposits would rise by 50,200 crore and loans of 18,500 crore in mortgage and asset-backed funds would be raised. Citi’s personal banking and wealth management products and 1.1 trillion in AUM will also be subject to it.

How much will Axis pay for the deal?

Far from 12,325 crore to be paid to Citi after regulatory nodes are installed, Axis Bank will also bear 1,500 crore as integration cost, 80% of which will be paid to Citi. It will also need to invest capital value 3,500 million instead of new assets that will add to the book. The acquisition will have an impact of 250 basis points (bps) on the bank’s capital, comprising 180 bps from the acquisition, 50 bps from additional capital requirements and 20 bps towards synergies. Although it looks expensive, it is expected to strengthen Axis’ retail portfolio.

What are some of the risks involved?

The main risk is from tension in the portfolio and Citi’s staff. Axis has pointed out that the plan has fallback settings if the changes are greater than those set in the price. According to Macquarie Research analysts, over the past four years, Citi’s spending per card has decreased to 14,000, from 16,000 in advance. Still, it’s above the industry average 12,000 by Axis Bank 9,000. There are also fears that Citi’s brand perception vis-a-vis Axis could lead to further customer churn, analysts at Kotak Institutional Equity said.

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