Axis Selects Kotak, Indusind for Citi Consumer Sector in India

Axis Bank has emerged as the frontrunner to buy out Citi’s consumer business in India, trying to win over competitors and, people in the know.

Axis and Citi have signed an exclusive deal to conduct bilateral negotiations, with Wall Street Bank having already informed the others of their decision. Citi expected around $ 2 billion from the sale as the US bank led by CEO Jane Fraser sought to pull out of consumer banking services in 13 countries, including India.

The final assessment will be linked to the number of variables including the amount of deposits, customers, partners, amount of assets and liabilities transferred from one franchise to another once all regulatory clearances have been obtained and could range from 500 million to $ 2 billion. “This is not a simple sale of a business, but an asset-liability sale. It will therefore be linked to several multiples, “said an official involved on condition of anonymity.

“We continue to move forward in our process of selling our business to consumers in India in accordance with our broader strategic update,” said the spokesperson for Citi. An Axis spokesperson declined to comment.

The business includes credit cards, retail banking, home loans and wealth management. The bank has 35 branches across the country and employs 4,000 people in consumer banking. It contributes a third to overall activity, but in terms of profitability, investment banking represents more than 80%. Overall, the Indian unit of Citibank had an advance and deposit market share of 0.6% and 1.1%, respectively.

Sources said that while Kotak was more aggressive at first, their tough negotiations over fees for transition services, among other things, turned out to be a deal breaker.

ET in its October 27 edition reported that Citi had shortlisted the 3 banks for the last round of negotiations. Singapore DBS,

and HDFC Bank had assessed the prospects of a deal, but ultimately did not bid, the people mentioned above said.

Credit Suisse advises Axis Bank.

Prospective buyers like Axis have sought to bolster the premium credit card and mortgage business through the acquisition, experts say. Citi entered India in 1902 and started the consumer banking business in 1985. Even though card business has fallen to sixth – with a 2% CAGR over the past decade – the average spend per map remained superior to those of the entire sector. Until last August, Citibank also served 2.9 million retail customers with 1.2 million bank accounts.

Axis investigated inorganic opportunities in the areas of insurance and microfinance. It was in talks with Kedaara Capital to acquire Spandana Spoorthy but the deal fell through.

Citibank operates a profitable franchise in India and had a loan portfolio of Rs 68,800 crore as of March 2021, of which Rs 28,000 crore were retail loans. These are mostly cards, mortgages and personal mortgages, according to a report released by investment group CLSA on September 8. It is the sixth-largest card issuer with a 4.2% market share of cards issued, the report adds. According to CLSA estimates, Citibank could have a credit card book of around Rs 9,000 crore.

“While Citi has seen a significant erosion of its card market share (currently at 4%), this would add 20 to 160% to existing cards o / s. Citi’s card spend at Rs 141,000 in FY21 is 10-120% higher than its peers (ex-IndusInd), said Ashish Gupta, analyst at Credit Suisse. “Axis / IndusInd would however likely have to raise capital as the CET would drop to 13% / 10%, resulting in a 6% / 16% dilution (to bring the capital back to pre-acquisition levels) and therefore , may see lower RoE benefit.

Across Asia, Citi is preparing to separate approximately 16,000 employees – a quarter of its workforce in Asia – and hundreds of thousands of customers by early next year as it reviews offers for its retail banking operations in the region. Fraser had announced that consumer firms in Asia, alongside those in Eastern Europe, would be sold just five weeks after taking the top job in February, saying they didn’t have “the scale we need to compete ”. However, Citi will retain its operations in Hong Kong and Singapore, its largest consumer markets in the region, and will continue to provide wealth management services to clients across the region while maintaining its institutional business – wholesale or corporate lending. companies, investment banking and treasury. solutions.

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