Citibank could sell its retail business in parts or as a whole with suitors ranging from local new and established lenders like Kotak Mahindra, IDFC First or even foreign banks like DBS Bank.
DBS Bank is considered one of the potential buyers of these businesses given its deep pockets and ambitions to expand in India. In November last year, the Singaporean lender completed the first of its kind RBI directed acquisition of a distressed lender taking control of Chennai based Lakshmi Vilas Bank (LVB).
DBS India has already infused more than $1 billion into India in its relatively new existence in the country and though LVB gives its wider access to South India, it may look at Citi‘s credit card portfolio to kick start that business in India. DBS does not offer credit cards in the country currently.
Kotak Mahindra Bank, which was said to be exploring an acquisition of IndusInd Bank and refused the offer for Yes Bank, could be interested in the Citi Bank assets
What’s on offer?
The consumer banking business, which includes cards and loans against property, would be around Rs 32,000 crore. It also has a huge amount of savings accounts built over the last few years, which has a lucrative liability book and also credit cards, which they were the largest among foreign banks in India.
The bank also had Rs 27,911 crore of loans to agriculture, affordable housing renewable energy and micro, small and medium enterprises (MSMEs). Of this, Rs 4,975 crore was to weaker sections, as part of Citi India’s priority sector lending obligations, results released last year showed.
Outstanding credit cards as of February stood at 2.65 million, the largest among foreign banks in India, ahead of 1.46 million by Standard Chartered and 1.56 million by Amex. Citi India had 2.9 million retail customers with 1.2 million bank accounts as of March 2020.
At the end of March 2020, Citibank served 2.9 million retail customers with 1.2 million bank accounts and 2.2 million credit card accounts.
Earlier acquisitions
Local lenders have profited from foreign banks’ exit from India over the last decade. IndusInd Bank for example brought and built up Deutsche Bank’s credit card portfolio in 2011 and followed it up by buying Royal Bank of Scotland’s (RBS) diamond financing business in 2015. Another private sector RBL Bank also started its credit card business by purchasing the portfolio from RBS in 2013.
Mridula Iyer, head – treasury & trade solutions (TTS), Citi South Asia
The use of data and analytics has enabled Citi to expand its borrower base in the supplier finance vertical in India, Mridula Iyer, head – treasury & trade solutions (TTS), Citi South Asia, tells Shritama Bose. The setting up of new umbrella entities (NUEs) should help drive innovation in the business-to-business (B2B) segment, she added. Excerpts:
The digital payments ecosystem in India has greatly evolved over the last decade. While we know about the strides made in consumer payments, have companies been as agile in adapting their systems to the evolving scenario?
Digitisation is now at the core of corporate strategies. It goes beyond cost saves, which corporates were previously focused on, and the focus is now on bringing about efficiencies in their sales and distribution processes as well as in sales enablement, including the way they deliver experience to their customers. Corporates are very open today to leveraging technologies like API and using new channels like UPI, QRs, NACH, etc., in order to digitise their engagement with the entire ecosystem.
In the pandemic, corporates who had digital as part of their core strategies have benefited more than firms that were just starting on their digital journey. Citi’s own experience has been that over the last few years, we have been trying to assist corporates in their whole digital transformation. During the pandemic it was easier for our customers to be up and running as soon as the lockdown was in effect because they were well-integrated with the bank and they had all their digital solutions in place. In our experience, banks are increasingly becoming digital advisors to companies in their digitisation journey.
The payments space in India has become a place where everybody wants a slice of the pie. As licences for NUEs are issued, how do you see the landscape changing? Have you also applied for a licence?
The NUE is a very interesting and innovative initiative and we can say that India today leads the pack in terms of digital solutions, when compared to some of the developed markets, which are trying to emulate what we have done. In spite of that, there is scope for a lot more players and solutions to come in so that we can accelerate the pace of digitisation. The NUEs will bring a lot more innovation into the payment system. Data will be a very big part of how these players build their products. But even beyond data, there will be ample scope for NUEs to work on new payment solutions, especially in the field of business-to-business (B2B) payments. It will be interesting to see how this space evolves.
Citi, like other foreign banks, has traditionally stayed away from lending to very small businesses in India. Do you see that changing with the way data and analytics capabilities are evolving now?
Definitely yes. When I look at Citi’s example, we have dedicated business segments that look after banking needs of MSMEs, partnership and proprietary firms and private limited companies. In addition, we run a strong and successful supplier finance programme. We have also recently launched a distribution finance programme. I believe data and analytics are going to play a very strong role in financing decisions. With so many data points available and the digital repositories such as e-invoicing, GST, etc., there is an opportunity for banks to make underwriting decisions and expand it to a wide range of companies. The payments data available with us, for example, can help in faster onboarding decisions, and we have been able to expand this programme to more suppliers.
Large Indian PSBs are investing in the supply chain financing vertical. Does that mean older players like you are having to do things any differently?
There is a lot of opportunity in the supply chain financing space, given that traditionally there has been a lack of credit to some segments. Even globally, the supply chain finance business is a $3-trillion opportunity and what banks and other players are doing is less than 10%. Likewise, in India, there is tremendous scope. Citi has introduced multiple innovations in our product offering and there are various market firsts that we bring to our clients.
For example, we provide an end-to-end digital platform for supplier financing, seamless paperless onboarding with complete information available online. So the way we are trying to maintain our market leadership is by bringing in more technology innovation into our product offering. Another way is through fintech partnerships. We are actively engaged with fintechs to build differentiated solutions in this space, using some of the new technologies.
Citibank NA, the largest foreign bank in India, may be closing down its consumer banking division, joining a host of overseas lenders to have shut shop in India over the last few years.
Earlier this month, Bloomberg had reported that the bank is looking to divest some units in retail banking in the Asia-Pacific region, including those in South Korea, Thailand, the Philippines, and Australia.
Reports now say it may look at hiving off its consumer banking unit in India too. The move comes when there is stress in retail portfolios due to pandemic and business is undergoing a slowdown.
Interestingly, this development comes when HSBC recently reported hitting $1 billion profit in India.
In September 2020, Citibanks’s head of consumer banking in the country, Shinjini Kumar, has stepped down after three years at the helm, the American lender said on Wednesday.
Kumar, 53, had joined the bank in 2017 from Paytm Payments Bank, where she was the chief executive.
Recent bank exits
Last year BNP Paribas had shut down its wealth management business in India, while JP Morgan had surrendered one of its NBFC licences in 2019. Barclays and FirstRand Bank have shuttered retail operations in India. HSBC had closed its private banking business in 2015, while UBS has stuttered its banking operations in 2013.
What Citi says
“As our incoming CEO Jane Fraser said in January, we are undertaking a dispassionate and thorough review of our strategy, including our mix of businesses and how they fit together. As you would expect, many different options are being considered and we will take the right amount of time before making any decisions,” Citigroup had said last month.
India operations
In India, Citi has 2.9 million retail customers, with 1.2 million bank accounts and 2.2 million credit card accounts.
It has about 6% share in credit card spends. The lender ins the largest foreign bank in India in terms of balance-sheet. the lender holds a 5.87% market share in digital payments. About 26% of foreign portfolio investment comes through Citibank India. It has over 19,000 employees with 35 branches in the country.
Arjun Chowdhry, Consumer Business Manager (CBM), Global Consumer Banking, Citi India
He will join the Asia Consumer Leadership team to ensure alignment with global and regional priorities attracting the right talent to build world class teams.
Arjun will be reporting to Ashu Khullar, CEO, Citi India and Fabio Fontainha, APAC & EMEA Head of Retail Banking.
The appointment is effective January 8, the local unit of the American banking major said in a statement on Monday.
The bank said, “Chowdhry joined Citi as a management associate and has held diverse roles, starting with consumer operations, moving to wealth management, NRI (non-resident Indian) and deposit products, credit cards, loans and payments.”
Arjun holds a B.Sc. (Hons) degree from St Stephen’s College, Delhi, and a PGDM (MBA) from the Indian Institute of Management (IIM), Bangalore.
The bank said, “Citi follows a segment-led strategy with a clear focus on digitization of the entire banking life cycle, from acquisition through transactions and servicing, resulting in strong growth in new-to-bank clients, volume and wallet share. Citibank India continues to have the leadership in wealth management, being the largest foreign bank in terms of AUM. Citibank India has redefined digital engagement with a revamped Citi Mobile app. Digital is the most preferred channel for Citibank India’s consumer banking customer engagement, with about 75 percent of financially active customers accessing their accounts through the bank’s online portal and mobile app, over 96 percent transactions done via self-service.”
2021 could be a year when both the RBI and the government will have to plan for at least some amount of normalisation, says Samiran Chakraborty, Chief Economist (India), Citiin conversation with ET NOW.
Digitisation and work from home has changed fortunes of Indian IT sector in terms of availability and optimisation. When the real economy shapes up in the post Covid world, are these factors which could surprise us and create a lot of upside? It is quite possible. It could work both ways. On the positive side, we have seen a significant improvement in profitability in the September quarter numbers for companies. Even if you adjust for factors like travel cost or advertisement and promotion costs or to some extent even wage cost, there still seems to be a residual element which could be attributed to productivity improvement.
On the other hand, because of all these physical distancing protocols to be maintained in different kinds of services and in some cases even may be in manufacturing, there is a decline in productivity which has led to somewhat higher prices — part of the reason why inflation has picked up during the Covid period. It is not just simply because of the lack of mobility issue but it could also be due to the fact that companies are being forced to abide by these physical distancing protocols leading to some productivity decline.
Both the things are working simultaneously but my sense is that over the next couple of quarters, looking at the productivity data and for wage cost, travel cost etc. we will have a much better sense of how much permanent improvement in productivity is contributing to this profitability.
We have got three important data points which are different. Bond yield is at a multi-year low, forex is at a multi-year high and rising fiscal deficit. We do not know how things will move in the Budget. How important are these three variables to judge the economy? At least for the first two, there is a strong element of RBI intervention which is keeping those two variables where they are. Fiscal deficit is more in the control of the government to decide where they want to put it. Now while we are all discussing the nascent economic recovery, we have to keep in mind that this recovery is to some extent on the crutches of the fiscal and monetary stimulus and 2021 could be a year when both the RBI and the government will have to plan for at least some amount of normalisation.
It may not be done immediately but in the latter part of the year, normalisation will probably become a necessity and that is where these variables will start playing an important role in the economy. We are not thinking of any policy rate hikes in 2021 but to some extent surplus liquidity in the banking system might get normalised which means that rates in the system go up a little bit. So, the 10-year government bond yields can move up to about quarter over the course of the year. On the exchange rate side, the big dilemma is that because we are having a current account surplus or at least a much lower current account deficit and huge amount of capital inflows, there is a constant pressure on the currency to appreciate which the RBI does not want to do because we are simultaneously following a self-reliant India campaign and putting some sort of import curbs to promote domestic manufacturing.
If the RBI is intervening so much that it is creating surplus liquidity that will militate against the RBI bid to tighten liquidity at the latter part of the year, how RBI manages between the two is going to be very critical for 2021.
On fiscal deficit we think it is possible for the government to target about a 4.5% fiscal deficit in the Budget this year on the back of slightly lower than 7% fiscal deficit and GDP last year and that is possible by so much of expenditure compression. But if the economic growth is normalising, then the revenue side will improve on the tax revenue side while on the non-tax revenue side, a lot of divestment proposals which could not fructify in FY21 might be carried over to FY22 and help the FY22 revenue collection. 4.5% fiscal deficit and GDP in our view is quite possible for next year.
Financial Express is now on Telegram.