The role of banking sector in Indian economy is immense as the commercial banks assist the Government of India to accomplish each goal of the planned economic development of the country.
The commercial banks provide the required financial support and infrastructure for both internal and external trade with the country’s retail business now having a portfolio worth roughly Rs 27,400 crore (excluding deposits).
Axis Bank, the country’s third-largest private bank, bought Citibank’s consumer banking unit for $1.6 billion (Rs 12,325 crore), in an all-cash agreement. Axis anticipates receiving regulatory approval for the purchase in nine months, after which it would integrate Citi’s retail clients onto its platform over the next 12-18 months.
Citibank’s credit card, retail banking, wealth management, and consumer loans businesses will be transferred to Axis Bank under the terms of the agreement.
The acquisition, according to Axis Bank, will offer it access to about 3 million Citibank customers, allowing it to expand its footprint in “important recognized growth categories.”
Following the nine-month transition phase, Axis Bank will onboard Citi customers, who will continue to receive all of the awards, privileges, and offers to which they were previously entitled.
The bank would also absorb 3,600 Citibank staff at “no less favourable terms of employment,” meaning that they will be paid the same or better. In addition, Axis will have access to seven offices, 21 branches, and 499 ATMs in 18 locations.
“A transaction like this only happens once in a lifetime… At a news conference, Axis Bank MD and CEO Amitabh Chaudhry said, “This acquisition would allow us access to possibly the best wealthy client franchise in India.”
Citicorp Finance (India) Ltd, Citi India’s non-banking finance subsidiary, is also involved in the transaction. This business includes asset-backed finance for commercial cars, construction equipment loans, and a separate portfolio of personal loans.
Customers with Citi’s affluent credit cards spend the most money each month in the banking industry. At the end of February, Citi had over 25 million credit cards in circulation, compared to 86 million for the private sector lender.
As a result of the transaction, Axis Bank’s credit portfolio will be closer to ICICI Bank’s credit portfolio, which has issued around 1.27 crore credit cards.
As a result, Axis Bank would become the country’s fourth largest credit card provider in terms of total cards issued, with annual card expenditure increasing by 17% to Rs.119,000 from Rs.102,000.
Why are foreign banks withdrawing from India?
FirstRand Bank followed Citigroup’s lead almost immediately after the latter announced its decision last year. The second-largest bank in South Africa has assets in India totaling $118 billion.
Due to high capital requirements and costs, Barclays, HSBC, and Bank of America-Merrill Lynch have also downsized.
Increased rivalry from domestic firms, disparities in compliance rules, and poor asset quality difficulties, among other things, have caused foreign banks to struggle. Indian banking’s bad-loan dilemma, according to some analysts, is to blame.
Last year, Citigroup’s global CEO Jane Fraser stated, “We believe our capital, investment dollars, and other resources are better allocated against higher-return prospects in wealth management and our institutional businesses in Asia.”
Foreign banks were asked to either operate through branch presence or establish up wholly-owned subsidiaries to be treated on par with Indian banks when the RBI issued rules in 2013.
While several banks’ business structures prevented them from opening new branches, just a few were granted licenses to do so.
In India, Deutsche Bank, Germany’s largest bank, operates 16 branches. The subsidiary model does not appeal to Kaushik Shaparia, the company’s chief country officer.
On the other hand, DBS Bank India does. In November 2020, it was given permission to purchase Lakshmi Vilas Bank. Following the takeover, the Singapore-based lender was able to expand its operations in India to roughly 600 branches, up from 34 before to the takeover.
Published By: Manan Khurana
Edited By: Subbuthai Padma
