What the acquisition of Citibank's India retail business means for Axis Bank

Private sector lender Axis Bank, on Wednesday, completed the acquisition of Citibank's consumer banking business in India for Rs 11,603 crore. The deal was first announced in March 2022, and the final price is lower than the Rs 12,325 crore announced then. Analysts say the lower price takes into consideration the decline in Citi's deposit base since the announcement, among other adjustments.

According to Gaurav Jani, analyst at Prabhudas Lilladher, deposits have seen a "rundown" of Rs 10,200 crore to Rs 39,900 crore. Some people, perhaps, consolidating their bank accounts or choosing not to migrate to Axis Bank, and some corporates and high net worth clients, possibly moving to other banks may have been a reason for the decline.

Nevertheless, the acquired asset portfolio at Rs 27,300 crore was largely intact. Also, given lower capital consumption, Axis Bank's Common Equity Tier 1 (CET-1) ratio would be higher at 14 per cent by the Jan-March quarter of 2023, versus estimated 13 per cent, said Jani.

Citi's credit card base too has declined to 1.8 million from 2.5 million in March 2022, due to some customers not porting to Axis and dormant, and inactive cards being cancelled, analysts pointed out.

Citibank was the seventh largest player in the credit cards business in India. With the acquisition, Axis Bank's credit card book increases by 42 per cent to Rs 29,200 crore and outstanding cards grow 19 per cent to 11.2 million, according to Nitin Aggarwal, research analyst at Motilal Oswal Financial Services.

That apart, the loan book as well as deposit book will also rise by 3.6 per cent to Rs 7.9 lakh crore and 4.7 per cent to Rs 8.9 lakh crore respectively, noted Aggarwal.

Importantly, 77 per cent of the Citi's aggregate deposit base of Rs 39,900 crore was CASA (current account and savings account), thus strengthening Axis Bank's CASA ratio by 150 basis points.

"The deal can be margin accretive for Axis Bank as the mix of retail/unsecured loans is likely to increase, overall synergies in terms of cost savings will start to accrue from calendar year 2024," he said.

The integration cost is estimated to be around Rs 1,500 crore for Axis Bank, but even adjusting to that the deal appears favourable for Axis Bank, said Chintan Shah of ICICI Securities.

"The acquisition aligns well with Axis Bank's premiumisation strategy as it gives access to a large, affluent and profitable consumer franchise. It gets access to a sizeable granular deposit base with deep corporate salary relationships (over 1,600 Suvidha corporates and 2.4 million retail customers) and has the potential to cross-sell Axis Bank's product offerings to Citibank's affluent customer base," said Shah.

Axis Bank will get access to Citi's 6 offices, 21 branches and 459 ATMs. Also, 3,200 employees from Citi's consumer banking business join Axis Bank from March 1.

Most analysts expect Axis Bank to take a one-time charge to account for acquisition-related expenses, which will impact its earnings for the Jan-March quarter. However, analysts remain positive on the long term growth prospects of the lender.