On 30th March 2022, the banking world in India was more bullish1 than ever! This day will be marked in the history of finance. On this day, it was officially announced that Citibank had reached an agreement worth Rs. 12,325 Crore with Axis Bank on the sale of its consumer business in India.
World-renowned, Citigroup entered India in 1902 and started the consumer banking business in 1985. Citibank is a global financial services firm serving over 100 million customers in 98 countries. Founded in 1812 in New York City, it has since grown to achieve $74 billion of revenue in 2019.
On the other hand, Axis Bank is the third-largest private sector bank in India. It is authorized by the Reserve Bank of India (RBI) and the Government of India to collect taxes on behalf of the State Government. The Bank offers a wide range of financial services to various customer verticals catering to Large and Mid-Corporates, MSMEs, and Retail and Agricultural Businesses.
But if your curiosity is questioning why this acquisition2 happened, we have answers for you!
The Economic Times noted that the sale by Citi is a part of Chief Executive, Jane Fraser’s efforts to propagate its business by exiting retail banking operations in 13 countries where it does not have the necessary scale to compete. Over the years, Citibank has been experiencing challenges from local competitors in India leading to steadily losing market share.
Let’s talk business – how much money is involved and how will Axis bank benefit?
Axis was chosen by Citi navigating through an extensive and competitive auction process. Axis will pay Citi cash consideration3 of approximately US$1.6 billion for the acquisition of its consumer business. This constitutes the sale of the consumer banking businesses of Citibank India, which include credit cards, retail banking, wealth management, and consumer loans. The transaction is expected to close in the first half of the calendar year 2023.
The transaction also includes the sale of the consumer business of Citi’s non-banking financial company, Citicorp Finance (India) Limited, comprising the asset-backed financing business. (Metapreneur Tip – read more about what is included in the asset-backed financing avenues.) This convergence will also involve approximately 3,600 Citi employees supporting the consumer businesses in India, who will transfer to Axis upon completion of the proposed transaction. Forbes India says that this deal will help narrow the retail banking gap with peers such as HDFC Bank and ICICI Bank.
Besides Axis bank’s 8.6 million credit card users, the buyout will give them access to 2.55 million Citibank customer cards and consequently grow its current card base by 31%. Combined, they form the 4th largest credit card portfolio in Indian banking. Nearly 8% rise has been witnessed in Axis Bank shares. Not just that, Axis Bank even outperformed benchmark indices4.
Impact on India’s economy?
Axis bank puts forth its aim for the coming many years in a nutshell to create a “Customer-centric and future-ready bank that will offer them a world of opportunities!” “The combined AUM5 of our wealth franchise will increase by 42% thereby making us the third-largest wealth manager in the country.”
Customers of Citibank can continue to enjoy all the rewards, privileges, and offers to which they were earlier entitled. On an overall basis, this transaction will add 7% to the Bank’s deposit base (with a 12% increase in CASA6) and a 4% increase in advances, said Axis Bank.
“Deal of a lifetime!” ~Axis Bank Chief Executive, Amitabh Chaudhry
The question we can leave you with is that yes, this acquisition is happening but will Axis bank be able to provide the
same service quality and facilities to Citi’s consumers?
How will a transition such huge in magnitude, occur –
both for employees and customers?
- Bullish – confident or optimistic about something
- Acquisition – an act of purchase of one company by another
- Cash consideration – purchase of the outstanding stock shares of a company using cash as the form of payment
- Benchmark indices – is a standard against which the performance of a security, mutual fund, or investment manager can be measured.
- AUM – Assets Under Management refers to the total market values of the assets that a mutual fund manages at a given point in time
- CASA – Current Account Savings Account, is aimed at combining the features of savings and checking accounts to entice customers to keep their money in the bank. It pays very low or no interest on the current account and an above-average return on the savings portion.