Axis Bank – the third largest private sector lender — completed the acquisition of the consumer businesses of Citibank India and its non-banking finance arm, Citicorp Finance (India), for a cash consideration of Rs 11,603 crore, less than the earlier estimate of Rs 12,325 crore made at the time of the announcement of the deal last year.
The value of the deal declined as the number of customers who decided to join Axis Bank was lower than what was envisaged earlier. Now, there will be an 18-month integration period during which Citi customers will be migrated to Axis’ technology platforms. The integration cost will be Rs 1,500 crore, which will be amortised by Axis Bank over 18 months.
The acquisition was completed in an accelerated time frame – within seven months of getting the Competition Commission of India’s approval, the bank said.
The transaction entails loans, credit cards, wealth management, and retail banking operations of Citibank India. It also includes the sale of asset-backed financing business — commercial vehicle and construction equipment loans — as well as the personal loans portfolio of Citicorp Finance.
“We have completed the acquisition before the timeline and we don’t need any (extra) capital to pay for this deal. The numbers are better than our expectations for Citibank’s staff joining the Axis Bank platform. The changes in key parameters largely remain along expected lines” said Amitabh Chaudhry, MD & CEO, Axis Bank.
When the deal was announced, Axis Bank estimated to get around 3 million customers of Citibank India, 2.5 million credit cards, Rs 1.11 trillion in assets under management (AUM) from Citi Wealth and private banking, Rs 50,000 crore of deposits, 3,600 employees of Citibank, and salary accounts of 1,600 corporates.
As the acquisition has been completed, Axis Bank is now getting over 2.4 million customers of Citibank India, around 2.2 million credit cards, Rs 94,700 crore of AUM from the wealth and private banking segments, around Rs 40,000 crore of deposits, of which 77 per cent is low-cost deposits, and around 3,200 consumer employees of Citibank.
“The moment you announce this kind of deal, it is expected that there would be some kind of customer attrition. We went through an express consent process and there was some amount of attrition in customers in that process,” said Subrat Mohanty, group executive & head – banking operations and transformation, Axis Bank.
“The original base of deposits was as of June 2021, when there was the second wave of the pandemic, and we had some of the highest deposit bases across the banking sector because of lack of spending. Any franchise that is exiting will see some customers deciding to consolidate their liabilities to one particular bank,” Mohanty said, adding both parties arrived at a formula wherein if there was a fall in certain business milestones, the consideration price will be adjusted accordingly.
Mohanty explained that from here on, Axis Bank will start engaging with Citibank customers and proactively manage them so that there is no further attrition in the base.
“There should not be any attrition because we’ll continue to proactively manage them. Today …uncertainty has completely gone away. Because now we will fund this business, we will invest in this business and we will continue to make sure that the customers stay with us. From here on, this becomes our investment, our time, our effort in managing this” Mohanty said.
Having said that, the consideration amount of Rs 11,603 crore is subject to contractual and customary true up and / or true down adjustments and changes in the business position from January 31, 2023 to 24:00 hours February 28,2023.
This deal will have a 177 basis points bearing on Axis Bank’s CET1 capital ratio. Post the transaction, the capital adequacy ratio of the bank will be 17.62 per cent while the CET1 ratio will be 13.78 per cent, which are well above the minimum regulatory requirements.
“We had at that time announced that the total cost for the next 18 months post tax would be Rs 1,500 crores and we continue to maintain that number. We are very confident that we should be able to close the implementation within 18 months of today. We will be amortizing that cost over 18 months”, Chaudhry said.
Post-acquisition, Axis Bank is gaining ready access to highly affluent wealth customers resulting in a 33 per cent addition to its overall AUM of Burgundy Private Banking portfolio, thus further strengthening the existing franchise. With an added AUM Rs 94,7oo crore across Citi products in Wealth Management and Private Banking, the current AUM of the Bank’s wealth management portfolio stands at Rs 3.78 trillion, making it the 3rd largest in the industry.
“We believe we’ve found the right home for our clients and our people. We remain focused on capturing the India opportunity by growing our already very strong institutional clients’ businesses, and supporting our global operations with the country’s exceptional talent base through our network of five Citi Solutions Centers”, said Ashu Khullar, CEO, Citi India.
Citi’s institutional client businesses in India are excluded from the sale and Citi remains focused on serving institutional clients in India and globally, the US-based lender added.
Source: Business-Standard