Axis Bank has emerged as the frontrunner to buy Citi’s consumer business in India, piping rival contenders Kotak Mahindra Bank and Indusind Bank, said people in the know.
Axis and Citi has signed an exclusivity agreement to hold bilateral negotiations as the Wall Street bank has already informed the others about their decision. Citi has been expecting around $2 billion from the sale as the US bank under CEO Jane Fraser has been looking to exit consumer banking in 13 countries, including India.
The final valuation will be linked to the number of variables including the quantum of deposits, customers, partners, quantum of assets and liabilities move from one franchise to another once all regulatory clearances come through and could range from 500 million to $2 billion figure. “This is not a straightforward sale of business but an asset liability sale. So it will be linked to several multiples,” said an official involved on condition of anonymity.
“We continue to move forward with our process with respect to our India consumer business sale in accordance with our broader strategic refresh,” said the Citi spokesperson. An Axis spokesperson declined to comment.
The business comprises credit cards, retail banking, home loans and wealth management. The bank has 35 branches in the country and employs 4,000 people in the consumer banking business. It contributes a third to overall business but in terms of profitability, corporate banking accounts for more than 80%. Overall, Citibank's India unit had a market share of advances and deposits of 0.6% and 1.1%, respectively.
Sources said, even though Kotak was more aggressive in the beginning, their hard negotiations over transition services fee among others turned out to be a deal breaker.
ET in its October 27 edition had reported that Citi shortlisted the 3 banks for the final round of negotiations. Singapore's DBS, ICICI Bank and HDFC Bank had evaluated the prospects of a deal, but eventually did not bid, said the people mentioned above.
Credit Suisse is advising Axis Bank.
Potential buyers like Axis has been looking to strengthen high-end credit card and mortgage businesses through the acquisition, feel experts. Citi entered India in 1902 and started the consumer banking business in 1985. Even though the cards business has dropped to sixth position - with 2% CAGR over the past decade - average card spend remained higher than that of the overall industry. Until last August, Citibank also catered to 2.9 million retail customers with 1.2 million bank accounts.
Axis has been looking at inorganic opportunities in insurance, micro finance. It was in discussions with Kedaara Capital to acquire Spandana Spoorthy but the deal fell through.
Citibank runs a profitable franchise in India and had a loan book of Rs 68,800 crores as on March, 2021, of which Rs 28,000 crore was retail loans. These mainly included cards, mortgages and personal mortgages, said a report released by investment group CLSA on September 8. It’s the sixth largest card issuer with market share of 4.2 per cent in cards issued, the report added. As per CLSA's estimates, Citibank could have a credit card book of approximately Rs 9,000 crore.
“While Citi has seen significant erosion in its card market share (currently at 4%), it would add 20-160% to existing cards o/s. Citi's spends per card at Rs141k in FY21 are 10-120% higher vs peers (ex-IndusInd), argued Ashish Gupta, analyst with Credit Suisse. “Axis/IndusInd, will, however, likely need to raise capital as CET would drop to 13%/10%, which would result in 6%/16% dilution (to bring capital back to pre-acquisition levels) and, hence, may see lower RoE benefit.”
Across Asia, Citi is preparing to part ways with about 16,000 staff — a quarter of its workforce in Asia — and hundreds of thousands of customers by early next year as it considers offers for its retail banking operations in the region. Fraser had announced that the Asia consumer businesses, alongside those in eastern Europe, would be sold just five weeks after she took on the top job in February, saying they lacked “the scale we need to compete”. However, Citi will still 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 along with maintaining its institutional business – wholesale or corporate lending, investment banking and treasury solutions.
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