Banks in India

What Citibank India exit means for its banking, credit card customers
US-based banking major Citigroup has decided to exit its consumer banking business in the Indian market along with that of 12 other countries.


Published: 19th April 2021 10:26 AM | Last Updated: 19th April 2021 10:26 AM

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Logo of Citigroup Inc in Tokyo (File photo |Reuters)

By Express News Service

NEW DELHI: US-based banking major Citigroup has decided to exit its consumer banking business in the Indian market along with
that of 12 other countries. Interestingly, it was done when the group recorded its highest-ever quarterly profits. However, with this announcement, a big question arises about its possible impact on the bank’s existing customers and employees.
“While the 13 markets have excellent businesses, we don’t have the scale we need to compete. We believe our capital, investment dollars, and other resources are better deployed against higher returning opportunities in wealth management and our institutional businesses in Asia,” Citigroup’s global CEO Jane Fraser had said. In India, Citibank currently has 35 branches with 19,235 employees and a business with a balance sheet of Rs 2.18 lakh crore. It has loans and deposits worth Rs 66,507 crore and Rs 1.57 lakh crore, respectively. The bank has around 3 million retail customers.
While analysts are still analysing the rationale behind the move, it has left many consumers who were having salary accounts, or holding credit cards to wonder, what will happen to them. Ashu Khullar, CEO, Citi India said there is no immediate change to the operations and no immediate impact to our colleagues as a result of this announcement.
“In the interim, we will continue to serve our clients with the same care, empathy, and dedication that we do today,” he said. While there was no further clarity on what will happen to the customers, the officials have brushed aside any concern regarding savings.
A senior executive of the bank said, those who are having salary accounts need not be worried. “There is no need to panic. Their money is safe and if there will be any change, customers will be informed much in advance to avoid any complexities. But so far, there is no need for that,” the executive assured. Citigroup, however, will continue to run its institutional business in India.




What Citibank India exit means for its banking, credit card customers
 
After Citigroup, Africa's FirstRand to cut presence in India: Why the country is a minefield for foreign banks

Foreign banks have struggled in India to compete with the local rivals. The Indian central bank has strict rules for foreign banks to operate in the country including local incorporation and PSL
DINESH UNNIKRISHNAN

APRIL 22, 2021 / 07:44 PM IST

For customers of Citi, there is no immediate change in the near relation with the bank.


For customers of Citi, there is no immediate change in the near relation with the bank.

After Citigroup's announcement to exit consumer business in India as part of a global plan, another foreign bank has decided to cut its presence in the country. South African lender FirstRand Ltd wants to scale back its presence in India by converting its branch to a representative office but won’t wind down its operations in the country, according to a Bloomberg report.
“Whilst it has proved difficult to build a meaningful in-country franchise, the Indian business has successfully focused on facilitating trade and investment activity in the Indo-Africa corridor,” the Johannesburg-based lender said, Bloomberg reported, adding FirstRand, which has operations across Africa and a representative office in Shanghai, already reduced its consumer banking in India almost five years ago.

Not a major player
Firstrand doesn’t have significant operations in India but this is the second foreign bank announcing scaling down of operations in India back to back. According to its website, FirstRand Bank India is a licensed financial services provider in India and operates as a "branch" of FirstRand Bank Limited South Africa. In 2019, FirstRand Bank celebrated ten years of successful operations in India under its Corporate and Investment Banking franchise. According to its annual report, the total investments in India as on March 31, 2020, stood at Rs 1208. 86 crore. It has total deposits of Rs 318 crore as on that date.
A week ago, Citibank said it will exit India consumer business as part of a global business strategy in 13 markets. The 13 nations Citibank --the largest foreign bank in India --will pull out from are Australia, Bahrain, China, India, Indonesia, Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand, and Vietnam. Citi will continue investing in its institutional business in India, the bank said.

Foreign banks struggle in Indian market
Foreign banks have struggled to catch up with their local competitors, especially in the retail business.
The Reserve Bank of India (RBI) has been insisting that foreign banks should have wholly local-owned subsidiaries (WoS) to get 'near-national' treatment. But, that would mean banks will have to bring in more capital to India compared to the model of operating from their home markets through the branch model. For this reason, only DBS and State Bank of Mauritius have set up wholly owned subsidiaries.
In the aftermath of the global financial crisis and building on the lessons from the crisis, the RBI issued a discussion paper in January 2011 on the mode of presence of foreign banks in India. It was decided to allow foreign banks to operate in India either through branch presence or they could set up WOS with near-national treatment, which refers to equal treatment on regulation with local banks.
The foreign banks had to choose one of the above two modes of presence and would be governed by the principle of single mode of presence. But, there weren't too many takers for the WoS model, with the possible exception of DBS among big banks.
That’s because, besides capital, the privilege of 'near-national treatment' came in with a big burden of compliance to the local rules, mainly the priority sector lending, which refers to mandatory lending (PSL) to economically weaker sections.

Priority sector lending
Among the rules that hurt foreign banks the most were those related to PSL. The RBI rules state that if a foreign bank wants to incorporate locally and wants to be treated at par with local banks, they will have to comply with a norm that requires at least 40 percent of the overall loans be given to economically weaker sections. This wasn't feasible for foreign banks, which were mostly confined to metros and urban centres. It was tough to break even in rural branches with Citi's business model and cost structure.
"To compete in retail, you require feet on the ground. Foreign banks, due to their high cost structure (on staff and infrastructure), couldn't expand like local banks," said Naresh Malhotra, former SBI banker and a senior banking consultant.
For those foreign banks which wanted to expand through a branch-only model, getting fresh permits from the central bank was tough. Consider this: Standard Chartered Bank, which is the largest international bank (in terms of branch network) in India, has only 100 branches in 43 cities--and it has been operating in India since 1858! Compare that with the State Bank of India, which has over 22,000 branches or the HDFC Bank that has over 5,600 branches.
And the competition has been getting tough for foreign banks over the years.
Banks like ICICI, HDFC Bank and Kotak, along with a bunch of small and mid-sized lenders, were aggressively upping their game to get a bigger pie of the retail business. Reason: Low rate of defaults and decent margin; in short, a safer bet compared to risky corporate loans.
Take for instance Citi. Citi's retail revenue contributed 30 percent to the total in March 2020, while corporate pitched in with 50 percent. In 2018-19, retail contributed 34 percent and corporate 46 percent, according to the details available. Thus, the retail business had been struggling. The percentage of non-performing assets (NPAs) to net advances has gone up to 0.56 percent as of March 2020 from 0.51 percent in the previous year.
Return on assets slightly moderated to 2.55 percent from 2.57 percent and business per employee improved to Rs 43.6 crore in FY20 from Rs 37.6 crore in the previous year. Interest income declined to 6.73 percent from seven percent during the period. To sum it up, there was no compelling reason for Citi to hold on to this market; an exit made sense.
Compared with this, HDFC Bank’s retail portfolio has grown by around seven per cent as on March 2021 from the year-ago period. Within the retail, HDFC Bank grew its credit cards business by 12 percent and home loans by around 10 percent. Similarly, Axis Bank has increased the share of retail loans by 9 percent on a year-on-year basis as per the data available till December 2020.
"India's retail banking industry is turning more competitive, more intense and more local. Foreign banks are at a disadvantage here compared to Indian banks," said Ashvin Parekh of Ashvin Parekh Advisory Services. "This is the right time for Citi to put their retail assets on the block or gradually wind it up," he points out.
That argument makes sense given that India has now opened up banking to multiple layers of lending institutions such as small finance banks, payment banks and, most recently, to digital lenders. More number of private banks would mean intense competition for foreign players who don't have a level playing field here.

(This is an updated version of an earlier story published on Moneycontrol)



DINESH UNNIKRISHNAN

After Citigroup, Africa's FirstRand To Cut Presence In India: Why The Country Is A Minefield For Foreign Banks
 
DBS, other rivals may be taking a closer look at Citi's India retail assets
A group of institutions including HSBC, Kotak and ICICI Bank have shown preliminary interest in Citi’s assets in India, according to people in the know. But, these are early stage enquiries.
DINESH UNNIKRISHNAN

APRIL 20, 2021 / 12:04 PM IST


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man hand showing Citibank logo on smart phone at agriculture green field district Katni Madhya Pradesh in India shot captured on sep 2019 Editorial credit: NEERAZ CHATURVEDI / Shutterstock.com

Two foreign banks and a clutch of Indian banks are weighing the possibility of buying out Citibank’s retail assets in India.
A few banks have shown “preliminary interest,” according to multiple people familiar with the development. Among those who are understood to have reached out to Citibank are Citi's key rivals, HSBC and DBS.


"DBS Bank is evaluating Citi's assets in India. It's a high quality portfolio," said an individual tracking the divestment process.


That apart, a few Indian banks, too, are sniffing at the opportunity that Citi's assets offer. It includes ICICI Bank and Kotak Mahindra Bank, who have shown interest in knowing the details of the offer, said the people quoted earlier. “But, these are early stage enquiries. These firms just want to know the key details of the assets. It will take time before we will have any clarity,” said one of the persons quoted above.

On 16 April, Citi said it will exit consumer/retail operations in 13 countries across Asia and Europe. The 13 nations include Australia, Bahrain, China, India, Indonesia, Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand, and Vietnam.

Citi's Global CEO Jane Fraser admitted the bank lacked the scale to grow in many markets. “Citigroup lacked the scale to properly compete in the 13 markets it is leaving," she said. According to her, Citi will henceforth sanction banking franchises in Asia and EMEA (Europe, Middle East and Africa) solely from four wealth centres -- Singapore, Hong Kong, the UAE and London.

Responding to an email query, DBS said. “At this juncture, the details are still unclear. However, we have always been open to exploring sensible bolt-on opportunities in markets where we have a consumer banking franchise (India, Indonesia, China and Taiwan) and where we can overlay our digital capabilities to serve our customers better.”

HSBC and Kotak Mahindra declined to comment for this story. ICICI Bank didn’t respond to the email queries.
Recently, a Macquarie report had mentioned a number of names as potential suitors to Citi's assets. These include SBI Cards, ICICI Bank, Axis Bank, RBL Bank, IndusInd Bank and IDFC First Bank.
Moneycontrol couldn't independently verify these names.


A good bet for DBS?
For someone looking at consumer business, Citi's India retail assets are a good bet, said Sanjv Bhasin, former India head of DBS.
"For instance, DBS now has a strong presence in SME (small and medium enterprises) through the Lakshmi Vilas Bank (LVB) acquisition. If LVB gives them the SME foray, then the Citibank portfolio gives them a mixture of upper-end consumer banking, middle market and the middle-market consumer banking," said Bhasin. "So it fits into their scheme of things of becoming a universal bank," he said.
Bhasin further said such a move would make sense to DBS because it is a wholly owned subsidiary in India. In 2017, the Singapore-based lender received the RBI nod to set up a wholly owned subsidiary in India and was rewarded with the LVB deal when the central bank was looking for an emergency rescuer for the bank.
"The question is the price at which it comes and the ability to integrate the customer segments," pointed out Bhasin.
Last year, the LVB was merged with DBS under an RBI-ordered scheme after LVB couldn't find an investor to repair its cracked balance sheet.
Another senior banker, who didn't want to be named, said Citi's retail assets will be more appealing to a foreign bank.Citi bank’s retail assets will offer good value to a foreign bank rival like DBS or HSBC as there is synergy in a lot of areas including technology and client profile," he said.
The process of Citi's asset sale may take a while since it has to secure the Reserve Bank of India’s clearance for its sale to any potential bidder. Citi exiting retail business is certainly good news for rivals who want to buy out a quality consumer banking portfolio.
Citi's local assets
The bank has close to 30 lakh customers in retail, 22 lakh credit cards and 12 lakh bank accounts, as of March 2020. It has around six percent market share of credit card spends in December 2020, but this percentage would have declined further since then. It has advances of Rs 66,507 crore and deposits of Rs 1, 57,869 crore. Retail revenue contributed 30 percent to the total in March, 2020, while corporate pitched in with 50 percent. In 2018-19, retail contributed 34 percent and corporate 46 percent, according to the details available.
It's percentage of non-performing assets (NPAs) to net advances have gone up to 0.56 percent as of March, 2020 from 0.51 percent in the previous year. Return on assets slightly moderated to 2.55 percent from 2.57 percent and business per employee improved to Rs 43.6 crore in FY20 from Rs 37.6 crore in the previous year. Interest income declined to 6.73 percent in FY20 from seven percent during the period.
Post the asset sale, Citibank would continue to focus on its institutional business and will invest more in the segment, the bank has said.

Citi was amongst the first banks to launch SMS banking and credit card business in India. It is also among the banks that pioneered phone and internet banking services in the country.
Ashwin Mohan contributed to the story.


DINESH UNNIKRISHNAN


DBS, Other Rivals May Be Taking A Closer Look At Citi's India Retail Assets
 
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