Here’s why Axis Bank may be willing to pay $2 billion to buy Citi’s India ops
BCCI / Business Insider India
- Axis Bank has reportedly pulled far ahead in the race to acquire Citi Bank’s retail assets.
- The acquisition includes the lucrative customer base of 2.58 million credit card holders, who spend nearly a third more than the industry on average.
- From raw numbers to synergy gains and more, here’s everything that Axis Bank will gain if it wins the bid to acquire Citi Bank’s retail assets.
AdvertisementAxis Bank could be the leading horse in the race to acquire Citi Bank’s retail assets, and the biggest gain for India’s third largest private bank would undoubtedly be the 2.6 million high-end credit card customers.
Earlier, both Axis Bank and Kotak Mahindra Bank were said to be in a neck-to-neck race to acquire Citi Bank’s retail assets. However, new reports suggest that Axis Bank has raced ahead with an offer worth $2 billion (approx. ₹15,200 crore) in cash and incentives.
|Credit card holders||2.58 million|
|Retail customers||2.5 million|
|Loan accounts||1.2 million|
Source: Edelweiss Research, CLSA
“Citi Bank has a rich clientele across the credit card and wealth management segments, so it is understandable that the acquisition is at a premium. Axis Bank will have to manage the synergy gains well enough for this acquisition to prove useful,” Kranthi Bathini, Director, Equity Strategy at WealthMills Securities, told Business Insider.
Essentially, the question whether the price is fair will be answered once we know what more Axis is able to sell to Citi’s customers. Analysts at Edelweiss Research also echoed this point of view.
But there is still a lot for Axis Bank to gain from buying out Citi’s India operations. These are explained in three charts below.
Where does Axis Bank stand in the credit card industry?
Axis Bank is the fourth largest player when it comes to credit cards, standing behind HDFC Bank, SBI and ICICI Bank.
Citi Bank comes in at the sixth place with a market share of just under 4%.
AdvertisementHowever, it’s not only the credit card numbers that matter in this case, it’s also the value of transactions that each card issuer processes.
While Axis Bank has three times the number of card holders that Citi does, the value of transactions it processes is only a little over two times higher.
Post the acquisition, Axis would be in a neck-to-neck fight with ICICI Bank to become the third-largest card issuer, while in terms of credit card spends, it would account for nearly 13% of the total.
What exactly does Citi Bank bring to the table?
According to a report by Edelweiss Research, Citi Bank’s credit card holders spend 30% more when compared to the industry average.
Citi Bank’s credit card holders spend twice as much as Axis Bank’s – an equation that would have contributed considerably to Axis paying a premium to acquire Citi India’s retail assets.
Post-acquisition, Axis Bank would see its average credit card spends per user increase by nearly 23%, which could prove to be a significant boost for the company.
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