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Wednesday, May 19, 2021

Explained: Why is CitiBank selling its India business, and what next for bank account holders?

Even as it has decided to sell off the retail accounts and credit cards business, the bank has indicated that there won’t be any layoffs or closure of offices in India.

Written by George Mathew , Sandeep Singh , Edited by Explained Desk | New Delhi |
Updated: April 22, 2021 9:14:44 am
CitiBank, CitiBank India business, Citibank India consumers, Citibank explained, express Explained, Business news,Having started its India operations in 1902, Citibank serves 2.9 million retail customers with 1.2 million bank accounts.

US banking major Citigroup, a leading foreign bank in India, on Thursday announced its exit from the consumer banking business in the country (along with 12 other countries) as part of a global strategy to focus on institutional business. The bank has, however, said that it will continue with its wealth management and institutional business in India. Even as it has decided to sell off the retail accounts and credit cards business, the bank has indicated that there won’t be any layoffs or closure of offices in India.

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What is the scale of Citibank’s business in India?

Having started its India operations in 1902, Citibank serves 2.9 million retail customers with 1.2 million bank accounts. It has 2.2 million credit card accounts with around 6 per cent market share of retail credit card spends in the country.

Citibank India has 35 branches and as of the year ended March 2020, the bank had advances aggregating to Rs 66,507 crore and deposits worth Rs 157,869 crore.

The bank said that for the Citi franchise in India (Citi) in aggregate, total assets, including credit extended to Indian institutional clients from offshore Citi entities, stood at Rs 299,250 crore as on March 31, 2020.

In the year ended March 2020, the bank reported a net profit of Rs 4,918 crore. 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 FY’20, the bank earned income of Rs 1,727 crore in commission, exchange and brokerage during the year.

Why is Citi selling its consumer banking business?

Many feel 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.

Citigroup global Chief Executive Jane Fraser on Thursday said it 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.

Ashu Khullar, CEO, Citi India, said, “Citi has been a deeply embedded 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.

What did Citi bring to India and what does the franchise offer?

Citibank popularised the concept of credit cards and ATMs in India in the ‘80s. Many feel that alongside the assets, the acquirer of the bank will get high net worth clients and bank accounts. Some bankers say that while Citibank credit card programme could be a valuable proposition in this entire M&A, Citi franchisee could interest many because of its high quality SOPs, trained staff and product development capabilities among others.

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Who will be interested in buying Citi’s consumer banking business in India?

Bankers say several mid-sized banks in India would be interested in buying Citi’s consumer banking business as it would provide them with scale. Industry insiders, however, point towards various models. While it could be tough to find a big buyer who can 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 could 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 its mortgage business, it can go for that and someone who is interested in the card business, can go for it.

What does it mean for the bank’s account holders?

The bank has said as of now there will be no change in the bank’s operations and they will continue to serve their clients with the same care and dedication that they do today. Also, the bank has clearly said that it is not closing down the consumer business in India and its plans is to sell off the business.

This means that while Citi will continue to serve its account holders for now, they would be serviced by the acquirer, once the sale concludes.

As for Citi Gold clients (most premium customers of the bank) who are serviced by Citigroup globally for their international needs, a banker said Citi may enter into a deal with the acquirer in India and offer them to continue to serve those clients for their international requirements.

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