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Who will be benefited from Citibank’s exit from the Indian retail banking market?

Citibank sure knows how to stay in the headlines, but this time, the reason is a little different. This banking giant based in the United States (US) recently decided to exit the consumer banking business in 13 countries, including India, earlier this week as a part of a global strategy, this strategy entails more focus on institutionalized business and hence, comes this move. However, it is to be noted that the leading foreign bank will still continue its institutional and management business which earns the bank major fee income. In correspondence to the said decision, Citibank India has put on sale its retail banking business that includes advances totalling Rs 66,507 crore and deposits worth Rs 1,57,869 crore. I’m sure you have a lot of things circling your head right now- what this means for Indian customers, for the international company and most importantly- the Indian banking community. With the information that we have right now, let’s try and answer these conundrums.
What does this mean for the Indian market?
As of now, the bank has iterated that it’ll 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. Well, while we’re at, let’s bring some nostalgia for you by stating that Citibank was the one that popularised credit card and ATMs in India in the 1980s. Ashu Khullar, the Chief Executive Officer (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 of March 31, 2020, was Rs 2,99,250 crore. In a nutshell, what this means is that Citibank is not closing down consumer business in India, it is just planning to sell off the business, so as to focus on institutional business.

However, while industry insiders have pointed towards some models, it will still be a tough call to find the big buyer who will acquire the license in current times. It is because the bank has been pretty big on profits even in these trying times, since the bank registered 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 an income of Rs 1,727 crore in commission, exchange and brokerage during the year. Note that the new buyer will also have to clear the fit and proper criteria of the country’s central bank. As a result, experts believe that a more reasonable option would be the ‘sum of the parts ‘ valuation. This approach implies that various business segments of the bank’s business like the mortgage business or the card business would be valued immediately and taken up by interested buyers thus. “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 the consumer business, then it could be sold as parts to different players,” said Srinath Sridharan, senior BFSI leader and independent markets commentator.
As for what it means for the customers that have their accounts and hold credit cards of the US-based bank franchise, the bank has declared that the move would not affect in any manner the existing accounts, loans, EMIs, and credit cards. Not only that, but the bank has also explicitly declared that the exit will also not affect the employees in India. “India is a strategic talent pool for Citi and it will continue to grow the five ‘Citi Solution Centers”, said. At present, there are postings for 4,000 jobs at the solution centres posted on its hiring website, officials said.
What effects will it have on the Indian banking sector?
Well, let’s now talk about what this means for India’s retail banking sector. If analysts are to be believed, you can imagine a big gateway of opportunities opened up for the Indian financial sector, with private players like ICICI Bank, Axis Bank and Kotak Bank being the big beneficiaries of the increased market share opportunities among all verticals. “Private Banks and credit card companies like SBI Cards can be key beneficiaries of market share gains in the credit card segment. Some smaller private banks might be interested buyers of India portfolio as they are looking to scale up in the segment. Foreign banks might also look to expand their presence,” wrote Prakhar Sharma, Parameswaran Subramanian and Bhaskar Basu of Jefferies. “In India’s retail segment, Citi has built a stronger presence in credit cards where it has 6 per cent share in total spends and it also has a presence in housing loans (40 per cent of retail loan exposures) and its market share in savings deposits at 1.5 per cent is much higher than its market share in branches/ debit card clients”. As a result, Citi’s credit card business will be most sought after by suitors.  

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