US banking giant Citigroup, a leading foreign bank, on Thursday decided to exit the consumer banking business in India as part of a global strategy to focus on institutional business. Citibank India has now put on sale its retail banking business that includes advances totalling Rs 66,507 crore and deposits worth Rs 1,57,869 crore.
The US giant will not sell its wealth management and institutional business which earns the bank major fee income. It will sell off the retail accounts and credit cards, and indicated that there won’t be any layoffs or closure of offices in India. Citibank India, which began operations here in 1902, serves 2.9 million retail customers, with 1.2 million bank accounts and 2.2 million credit card accounts, and nearly 6 per cent market share of retail credit card spends in the nation. It popularised the concept of credit cards and ATMs in India in the ’80s.
Citigroup global CEO Jane Fraser said Thursday the bank will exit 13 international consumer banking markets, including India and China, shifting its focus to wealth management and away from retail banking in places where it is small. Citigroup will focus its global consumer banking business in four markets: Singapore, Hong Kong, London and the UAE.
Ashu Khullar, CEO, Citi India, said, “There is no immediate change to our 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.” For the Citi franchise in India (Citi) in aggregate, total assets, including credit extended to Indian institutional clients from offshore Citi entities, as on March 31, 2020, was Rs 2,99,250 crore.
“Citi is not closing down consumer business in India. However, the plan is to sell off this business. There won’t be any retrenchment or closure of offices. We will focus on the institutional business,” said an official of the bank.
While scaling up the consumer banking business has been an issue, profits were not an issue for the bank as it reported a net profit of Rs 4,918 crore in the year ended March 2020. The bulk of the profit, however, came from the bank’s other income. While its profit on exchange transactions stood at a net of Rs 2,334 crore in FY20, the bank earned income of Rs 1,727 crore in commission, exchange and brokerage during the year.
As for the big question of who will buy the bank’s retail business, industry insiders point towards various models. Many feel that since it will be tough to find a big buyer who will acquire the license in current times, the new buyer will also have to clear the fit and proper criteria of the Reserve Bank of India. The more feasible option seems to be ‘Sum of the Parts’ valuation approach where business segments would be valued independently and taken up by interested parties. So, if some bank is interested in Citi’s mortgage business, it can go for that and someone who is interested in the card business, can go for that.
“Potential acquirers could be foreign banks wanting to enter India. But most of the large retail bank brands are already in the country. Another option could be for Citibank to strategically sell branch banking business to an existing bank in India and if the acquirer is not interested in the rest of consumer business then it could be sold as parts to different players,” said Srinath Sridharan, senior BFSI leader and independent markets commentator.
The Citibank credit card programme could be a valuable proposition in this entire M&A. There are some who feel that the Citi franchisee could interest many because of its high quality SOPs, trained staff and product development capabilities among others. Another banker who did not wish to be named said, “Citi India is good franchisee for any mid-sized Indian private bank to look for to grow in scale.”
Some feel that the reason for selling the consumer banking business is that the profits of the consumer banking business have been under stress and a lot more capital was needed to run that business. “Citibank could not scale retail consumer franchise in India as it did not ‘glocalise’ fast enough,” said a banker.
On its institutional business which will be retained by Citi, Khullar said, “Citi has been a deeply imbedded institution in India and the sharpened strategy announced today will strengthen our ability to bring the full global power of Citi to our institutional clients, reinforcing our leading positions across corporate, commercial and investment banking, treasury and trade solutions, as well as markets and securities services.” Citi’s commercial banking segment serves over 3,000 clients.