11 April 2022: Citibank India has written to its consumer clients, seeking to reassure them of there being no immediate change to any products. In a letter dated March 31, the bank told its customers Axis Bank’s acquisition of its consumer businesses is likely to close in the first half of calendar year 2023.
It is crucial for Citi to minimise the erosion of its retail customer base during the eight to 12-month transition period, since the agreement with Axis Bank includes clawback terms to account for a higher-than-expected attrition in the foreign lender’s customer and employee base. The deal value of $1.6 billion (Rs 12,325 crore) is subject to renegotiation in such a scenario. Axis Bank will be shelling out an additional Rs 1,500 crore to pay for the cost of transition, most of which will go to Citi.
“Let us reassure you, once again, that there will be no immediate change to any product you hold with us, be it credit cards, loans, deposits, investments, or any others. All our consumer banking operations including our call centers, ATMs, relationship teams, branches, Citibank online portal and the Citi mobile application, shall continue to operate as they do today,” Arjun Chowdhry, country business manager — global consumer bank, Citibank India, said in the letter to customers.
The announcement of the deal is only the start of a process, Chowdhry said in the letter, and while there will be a transition, the bank shall ensure that it is done in as seamless a manner as possible. “We will ensure you are duly informed of all relevant changes to your services and products, with adequate advance notice,” the letter said.
In its March 30 statement, Citi had said that it will ensure that the transition is made seamlessly and with due notice. “There will be no immediate impact on the services to the customers of Citi’s consumer businesses in India,” the statement said.
Retention of personnel and the premium customer base of Citi’s India business are key to the deal making sense for Axis. Sections of the market have viewed the deal as an expensive bet on Axis Bank’s part. After the announcement of the deal, analysts at Jefferies wrote that Axis’s common equity tier-1 (CET1) capital adequacy ratio will slip to 12.8% from 15.3% in December 2021, which is materially lower than the 16-17% average for other private banks.
“The all-inclusive cost of acquisition implies 21x PE (price-to-earnings) on FY20 normalised earnings, which, in our view, is at a premium as Citibank’s standalone growth has been modest in India,” Jefferies said.