A significant move initiated by Axis Bank, India’s third largest private sector lender, to acquire Citibank’s retail business has become an intriguing point to stay in. We’ll briefly discuss acquisition in general before moving on to the afore mentioned Axis-Citi transaction.
We often get to hear merger and acquisition interchangeably. It generally results in the unification of assets and liabilities under one entity and can be misunderstood as one. Mergers and acquisitions (M&A) refer to a business transaction wherein the proprietorship of companies, or their operating units, are transferred or amalgamated with another company or business organization. This helps them to grow, downsize, change their businesses nature as well as its position in the market. Theoretically, merger implies consolidation of two existing companies into one new company, whereas acquisition implicates a business strategy involving procurement of one business entity by another.
The goal of such an M&A is to advance the growth strategy of the target company. The M&A may occur as part of the company’s efforts to broaden its geographic reach, boost its market share, lessen competition, capitalize on patents, or even enter new markets or product categories. Companies frequently take advantage of other underperforming businesses or governments looking to disinvest.
Citi Bank is one of the topmost foreign banks operating in India and has been in the retail operations domain since 1985 with 30 lakh unique customers and 1.2 billion accounts and 3000 corporate clients. They have a striking portfolio of loans, healthy deposits, attractive credit card portfolio, which made it easy for Axis to invest and acquire the business.
Axis Bank’s move to acquire Citi Bank is seen as a strategic act to strengthen its market position. It’s an Rs.12,325 crore all-cash transaction. The agreement includes sale of the consumer banking businesses of Citibank India which includes credit cards, wealth management, retail banking and consumer loans, consumer business of Citi’s non-banking financial company and Citicorp Finance (India) Limited. India-based institutional client businesses of Citi are not included. With this agreement, Axis Bank will acquire 30 lakh unique customers and 3,600 employees of Citibank. All 21 branches existing in the prime location and 3,600 employees will be retained.
The proposed transaction will increase Axis Bank’s deposit base by about 7% and its advances by about 4%. Axis Bank will also get the most out of Citibank’s consumer banking acquisition in different areas. Let us have a look at each of the pointers:
- Axis Bank is primarily a retail bank, with 55% of its advances coming from retail assets. The acquisition of Citi’s consumer banking business will give it a boost to its retail banking portfolio. The entire portfolio will be included in the consumer banking division of the bank, which in turn will increase its share in retail banking.
- Axis Bank will rank among the top three card players, as a result of the acquisition. Axis Bank asserts that acquiring an additional 25 lakh Citibank cards will result in a 57% increase in the balance sheet of its cards. The bank’s retail portfolio will undoubtedly benefit from a high yield from the credit card portfolio of salaried and high-net-worth individuals.
- Cross-selling other banking products to Citi’s 30 lakh top-tier customers presents a significant opportunity. The bank will also have access to 499 ATMs spread across 18 cities, 21 branches, and 7 offices. This will be advantageous for its wealth management division.
- Axis Bank will also benefit from the assistance of Citibank customers in maintaining a higher current account to savings account (CASA) ratio. The CASA ratio of Axis Bank will increase from roughly 45% to 47%. Due to the high CASA ratio, net interest margins will increase significantly.
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- Reliance Retail Ventures Limited (RRVL), a subsidiary of Reliance Industries Limited, acquired the Future Group’s Retail & Wholesale Business and Logistics & Warehousing Business.
- Etergo BV, a maker of electric scooters with its headquarters in Amsterdam, was purchased by Ola electric mobility private limited, a subsidiary of the Indian cab aggregator Ola cabs. With this acquisition, the company is all set to enter the premium electric two-wheeler market, both nationally and internationally.
- Ebix, an Atlanta-based software firm, acquired Indian online travel booking company Yatra in a merger deal for $337.8 million in order to strengthen its position in India’s hotel and flight ticketing markets.
This brings us to the end of this blog. If you find the minute details about M&A fascinating and want to learn more, taking a finance course will be helpful. Under the proper guidance of industry experts, one can acquire the skills necessary to comprehend all theoretical knowledge and break it down into information that is simple and easy to understand. This will assist in comprehending various business models. EduPristine’s financial modeling course is well-known and leads to numerous job opportunities.
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