India’s largest and oldest foreign bank is all set to bid adieu to India’s consumer banking business. The announcement baffled bankers all across the country, as the Citi Group has decent market share in world’s second largest country. The article may be little lengthy, as we will try to cover all possible aspects of the exit. Let’s first look at the scale of operations of Citi Bank in India.
Citi served 2.9 million customers in India, with 1.2 million bank accounts and 2.2 million credit card accounts as of Mar’20. America’s third largest lender, is also one of the largest credit card issuer in India with 2.6m cards outstanding as of 28th Feb’21 (6th largest). The Bank’s Indian deposit book was ₹1.6 trillion as of 31Mar20, more than 50% of which were low cost current and savings deposits (CASA). To give numbers a life, Citi’s CASA deposits are more than some of the established Indian Banks’ CASA deposit: e.g.: RBL Bank and IDFC First Bank. Although Citi has only 35 branches in India, it commands a 1.5% market share in deposits. Overall, Citi had a ₹2.1 trillion balance sheet in India and reported net profit of ₹4,912 crores in FY20. The numbers may look overwhelming, but Citi’s Indian asset book is less than 2% of its overall asset size.
Now the most important question: Why the exit from India? Firstly Citi is not only exiting consumer banking business in India, but also in 12 other countries, which includes China, Russia, Korea, Taiwan and Australia. Hence, we may very well conclude that, problem is not with India, but with Citi’s consumer banking operations. This is reflected via fact that the Citi’s global consumer banking net income accounted for only 7.72% of the total net income in 2020. The Bank believes, it is unable to generate substantial return on its consumer business, which leads to inefficient asset allocation and utilisation. Citi rather wants to focus on wealth management and institutional business, where it generates much of its profits. This is a major strategic overhaul for the bank after the new CEO Jane Fraser took over its helm. The exit roadmap from India was set up in early 2020 , when Fraser visited India. To reiterate Citi is only exiting consumer banking business in India, it will continue to operate its institutional and wealth management business in the country.
Citi is not the first foreign bank to bid Adieu, and will also not be the last. Indian consumer banking business is highly competitive, with large Private and PSU players aggressively fighting for the business. ANZ Grindlays was one of the first foreign bank to exit from India, when it sold its operations to Standard Chartered Bank in the year 2,000. Barclays Bank hived of its Indian retail banking business within 5 years of inception in 2009, and sold its operations to Standard Chartered Bank and Kotak Mahindra Bank. Deutsche Bank did two exits from India, after exiting in the year 2000, it again re-entered in the year 2005, only to say final goodbye to retail banking in 2011, when its sold its credit card business to Induslnd Bank. Swiss major UBS Bank and American major Morgan Stanley gave up their Indian banking license in 2013. Later, Goldman Sachs also surrendered its Indian banking license. Bank of America-Merrill Lynch which was once India’s biggest wealth management unit, sold of its Indian operations to competitors. Royal Bank of Scotland sold its Indian banking business to RBL bank in 2013. Most iconic exit was of the Dutch major ING, when it sold of its banking operations to Kotak Mahindra Bank, initially in the form of a merger in 2014. This was a major turning point in the Indian Banking industry (to be discussed later).
Citi Bank spokesperson have clearly stated that the exit would be successful if and when they are able to find a buyer. So who will pitch in to buy this mammoth? This can be a very good opportunity for local Indian banks to boost up their market share by purchasing Citi’s premier customer base. While foreign banks such as HSBC may also be interested, given their Asia and retail specific focus. Singapore based DBS may also be a strong contender, amongst the foreign banks as they have recently acquired local Lakshmi Vilas Bank. Kotak Mahindra Bank has in past hinted at inorganic growth, further with its history of ING, it can very well be in the race. Citi may also look to sell its credit card business separately to attract higher valuation, and SBI Cards may be interested in the same. After the exit news, SBI Cards share price closed 6.7% higher on Friday. We also can’t rule out India’s largest private lender buying the foreign bank’s business, as it is struggling to ramp up its digital assets. The acquisition may bring Citi’s state of the art technology to HDFC’s doorstep.
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