Axis Bank’s planned acquisition of Citigroup’s consumer banking portfolio will strengthen its retail market position as well as diversify the revenue profile, global rating agency S&P said on Friday. “We expect significant profitability improvements to only accrue from fiscal 2025 onwards as it will take time to complete the acquisition and integrate the assets. The acquisition is likely to be completed over the next nine to 12 months, while full integration will take another 18 months,” the agency said in a statement.

Earnings will also depend on Axis Bank’s (BB+/Positive/B) ability to retain acquired customers and successfully cross-sell its products and services to them, it said.

Axis Bank should be able to absorb any incremental risks given the small size of Citi’s portfolio, it said, adding, the acquired portfolio is equivalent to about 4 per cent of Axis Bank’s loans, and it comprises credit cards, mortgage loans, personal loans, asset-backed finance and small business banking loans.

Citi’s portfolio mainly comprised affluent clients, where credit quality tends to be better than mass-market customers. Citi’s spending per credit card is higher than Axis Bank’s as well as the average for Indian banks.

The acquisition is positive for Axis Bank’s long-term profitability, it said, adding, a large part of the portfolio is unsecured, where yields are higher than mortgages.

Axis Bank’s credit card customer base will increase by 2.5 million through this acquisition — a 31 per cent jump which enhances its market position in this segment, the report said.

Also, the acquired deposits are mostly low-cost saving accounts with good quality corporate salary accounts, where cross-selling can be profitable.

“The acquisition will reduce Axis Bank’s capital buffer because it plans use excess capital to fund the deal. The bank’s S&P Global Ratings Risk-Adjusted Capital (RAC) ratio was 8.5 per cent as of March 31, 2021,” it said.

As per the initial estimates, this acquisition can reduce the RAC ratio by about 100 basis points. “Despite the deterioration, we expect the RAC ratio to stay sufficient for its rating,” it said.

The bank’s earnings will remain supportive of its capital position, and it enjoys good access to markets and can raise additional capital to restore buffers and fund organic growth, it added.