Citi today declared that it has entered into a contract with Axis Bank Limited (Axis) for the sale of Citi’s consumer business in India. Axis was selected by Citi following an extensive and competitive bidding procedure.
The transaction involves the sale of Citibank India’s consumer banking business, which includes credit cards, retail banking, wealth management, and consumer loans. The transaction also includes the sale of the consumer business of Citicorp Finance (India) Limited, Citicorp’s non-banking financial company, which includes an asset-backed financing business, including commercial vehicle and construction equipment loans as well as a personal loan portfolio. It excludes Citi’s institutional client businesses in India; Citi is committed and focused on serving institutional clients in India and worldwide.
After six months of grueling negotiations, Axis Bank – the nation’s third-largest bank – has bagged the Citi India consumer banking deal, beating half a dozen other major institutions. The acquisition cost of the loan book of Citi, worth at least USD 3.5 billion, is estimated at $1.6 billion, well below the estimated $2 billion.
Indeed, valuation was the worrisome issue that kept many banks away. But Axis Bank, which has ambitious plans to grow the business, remained on the stand. Citi’s consumer business is not big. It is going to contribute only 7 percent to Axis’ deposit base and 4 percent to its advances, but the deal will strengthen the bank’s retail banking business. Axis Bank is primarily a retail bank with 55 percent of its retail assets being in advance. Amitabh Chaudhary, MD, and CEO of Axis Bank admit that the purchase will give the bank a slight boost to its retail assets. Citi’s retail assets have been on the decline since new CEO Jane Fraser took over in March 2021 and decided to exit its consumer franchises in 13 markets, including India.
The final catch is the high-yielding credit card portfolio where Axis was a bit behind. The acquisition has placed the bank among the top three card players in terms of outstanding receivables. In terms of the number of cards, Axis, with over 11.15 million cardholders, will be in the fourth position. Currently, the top three players are HDFC Bank, ICICI Bank, and SBI Cards.
Axis claims its credit card balance sheet will grow 57 percent with Citi’s additional 2.5 million cards. The bank is also getting a high level of current and savings to account customers. Axis Bank’s current CASA ratio will increase to 47 percent from around 45 percent. This high CASA ratio, which is a low-cost stable fund, will go a long way in improving the net interest margin. The bank will have over 1,600 facility corporate relationships with over 10 lakh customers. This will offer a good base of stable depositors.
However, it’s not all fun and games. The biggest challenge is to retain Citi customers as they are already fleeing the bank. “This shouts for a transformation in management approach and can Axis Bank appear as the natural banker-of-choice for this outstanding customer profile,” states Krishnan ASV, institutional research analyst at HDFC Securities. Axis has inserted a clause in the deal. If the customer base shrinks or the business suffers, the bank will pay a discounted price.
The transaction will also include about 3,600 Citi employees helping consumer businesses in India, who will migrate to Axis upon fulfillment of the proposed transaction. Axis will pay Citi roughly USD 1.6 billion in cash for the acquisition of the consumer business, subject to customary closing adjustments.
The transaction is expected to close in the first half of the calendar year 2023, subject to necessary regulatory approvals. This announcement is just the beginning of a process, and when there is a transition, Citi will ensure that it is done as seamlessly as possible with appropriate notification. Services to customers of Citi’s consumer business in India will not be immediately affected.
Upon closing, Citi expects the transaction to result in approximately US$800 million of allocated tangible common equity. As earlier reported, Citi’s global exit from its consumer banking franchises in 13 markets in Asia and EMEA is predicted to release approximately USD 7 billion of tangible common equity over time.
Peter Babej, Asia Pacific CEO of Citi stated, “Our declared transaction with Axis, a leader in financial services in Indian, is a significant landmark for our franchise and gives a wonderful chance to our Indian consumer banking partners. As we move ahead with this transaction, India stays a key institutional market for Citi. In line with our broader strategic repositioning, we will continue to support our institutional clients in these core markets and across APAC, bringing the full power of our global network to enable their growth.”
Since 1902, Citi has been present in India and is the banker of preference for large and mid-sized corporations, multinationals operating, and financial institutions in the nation. It has a market-leading corporate bank in the country which is the biggest in APAC. Citi serves more than 2000 international corporations and 300+ large domestic companies and financial institutions in India. It allows businesses to raise funds (debt and equity) and offers financing solutions, besides working with them on transaction banking and risk management. Citi is actively involved in various government initiatives including FDI investments under the Government of India’s PLI (Performance Linked Incentive) scheme as well as working with its clients to channelize foreign capital through FII/FPI flows into the country.
“We believe that Axis will provide an excellent environment for our employees to build their careers and cater to all the financial needs of our customer clients,” said TT Cole, CEO of Legacy Franchises at Citi.
With a physical presence in 95 nations, Citi operates closely with international clients, attracting both FPI and FDI inflows and placing India as a key international supply chain destination, while encouraging investment across the nation. Citi partners in its clients’ digital and ESG journeys with custom solutions that in turn support inclusion and sustainability.
As a leading investment bank in India for over 15 years, in 2021 alone, Citi has helped raise over US$29 billion in capital from over 40 equity and debt transactions and provided strategic M&A advice on seven announced transactions, amounting to over US$5 billion. Citi also operates 8% of the country’s trade flows and 5% of India’s e-payment flows. Citi supports foreign portfolio investors in accessing Indian markets – managing almost a third of their activities in India as custodians.
Citi’s Advisory Group, Capital Markets, and Banking is functioning as Citi’s premier financial advisor with regard to the transaction.
Citibank tech integration to take 18 months after acquisition: Axis Bank MD
Axis Bank’s acquisition of Citibank’s consumer banking business is predicted to be finished by Q4 of FY23, but the technology integration will take another 18 months because of dissimilarities in the tech platforms of the two banks.
Chowdhury said the first 8-12 months after the takeover will be critical. Currently, roughly 18 tracks are underway for the continued integration procedure, where teams from both banks are functioning together to determine the products on both sides, dissimilarities, and what ought to be done for Axis Bank to serve the customers of Citibank, he stated.
Valuing Citibank’s business
Axis Bank accounted for any deterioration in Citibank’s business before the acquisition was completed, and the data so far shows that the business is largely intact and in line with expectations.
Valuations are also based on cash flow, and the profitability the business is generating and can generate over time assuming very limited growth, Chowdhury said, adding, “There are 6-7 reasons why a Citibank franchise makes sense.”
Axis Bank is expected to acquire around ₹50,000 crores of deposits, ₹27,000-28,000 crore of assets, and 60-100 corporate pay ties from Citibank.
“Because Citibank has been in the country for 120 years, they have a customer base that Axis Bank would have taken a long time to acquire,” Chowdhury said, adding this will assist in strengthening Axis Bank’s corporate salary franchise which is presently weaker than some peers.
After the acquisition of the consumer banking business, Axis Bank is considered to be one of the top 3 players in terms of both credit cards and wealth management.
Customer, HR integration
Axis Bank has initiated the process of obtaining customer integration and customer consent, which includes multiple stages such as digital consent, telephonic conversations, and physical meetings in certain cases.
While some employees and clients may prefer to migrate to other organizations, the all-around feedback is that Citibank customers are comfortable transitioning to Axis Bank, Chowdhury stated. We know when we will swap to the next mode of obtaining consent and so on and so forth.
Chaudhary is also confident that Axis Bank will easily absorb Citibank’s 3,500 employees and 21 branches.
“The axis is growing left, right and center. We have 85,000 people, so many people, we can absorb them. No one needs to worry that they won’t have a job of the same or better nature, that they had before,” Chowdhury said.
Chowdhury said that where Axis Bank branches are close to Citibank, the bank may choose to close some Axis Bank branches as the Citibank branch service is better.