What does CitiBank's exit from retail business mean for its rivals in India?

Citi introduced the 'foreign' bank experience to the Indian customer, which others emulated in the following years. It developed a loyal client base over decades. One such is the head of a major development financial institution who recounted his long relation with the bank.

“There was an attempted fraudulent transaction on my CitiBank card from Singapore. The bank reached out to me quickly, blocked the card and issued a new one. And it immediately reversed the amount that got deducted from my account,” said the banker.

Some surprised...

The decision surprised customers, employees and even some competitors of Citi in India. “What could be the reason for CitiBank’s decision? It is an otherwise well-performing portfolio,” said the Deputy Managing Director of a State-owned bank on condition of anonymity.

A CitiBank India official said the employees had no clue of the decision till the global announcement happened.

“None of us still have a clue on why this decision was taken. Personally I think it doesn’t make sense especially for a major market like India where the existing retail portfolio is doing well,” said the official requesting not to be named.

Right decision..

But, some others said Citi has taken the right step at the right time. "India's retail banking industry is turning more competitive, more intense and more local. Foreign banks are at a disadvantage here compared with Indian banks," said Ashvin Parekh of Ashvin Parekh Advisory Services. "This is the right time for Citi to put their retail assets on the block or gradually wind it up," said Parekh.

That argument makes sense given that India has now opened up banking to multiple layers of institutions such as small finance banks, payment banks and, most recently, to digital lenders. More number of private banks would mean intense competition for foreign players who don't have a level playing field here.

The RBI has been insisting that foreign banks need to incorporate locally through a subsidiary model to get near-national treatment. But, not many have taken up that route. Citi's NBFC arm, Citi financial which did well initially, too took a hit in the post-crisis period.

Will Citi miss the retail boom?

Citi’s decision is surprising in the Indian market where every bank, including market leaders, are shifting focus to retail business perceiving it as a promising area and a less-risky one compared with wholesale. As more middle class customers rise to the high income bracket, banks have an opportunity.

Interestingly, on a day when CitiBank announced its decision to pull out of retail, the Indian central bank published the list of a new set of applicants for banking permits that incidentally feature a former Citi banker and an e-commerce veteran who have found an opportunity in retail banking.

The statement of Citi's Global CEO Jane Fraser admitted the bank lacked the scale to grow in many markets.

“Citigroup lacked the scale to properly compete in the 13 markets it is leaving. Fraser said henceforth Citi will franchise banking franchises in Asia and EMEA solely from four wealth centres -- Singapore, Hong Kong, the UAE and London. As Citi bids farewell to retailers, it is also the end of an era in the Indian banking.

What does CitiBank's exit from consumer business mean for it’s India focus? Citi has reiterated that it will continue to invest in wholesale and wealth management verticals. Only time will tell whether the decision will be proved beneficial for its business in the long term.

Good news for competition

For its competitors, Citi exiting retail business is certainly good news. The bank has close to 30 lakhs customers in retail, 22 lakhs credit cards and 12 lakh bank accounts as of March 2020. For smaller players who look to buy a quality portfolio, Citi will be a good bet.

Eventually CitiBank will sell its retail business to a new company either as a whole or in parts. The new employer’s strategy will be crucial to decide the fate of existing Citi staff.

For customers of Citi, there is no immediate change in the near relation with the bank. Business continues as usual for the customers and when the sale happens the new entity will take over the clientele as has happened in other cases.

CitiBank is not the oldest foreign bank in India. It’s rivals, HSBC and Standard Chartered have been here much before. Even then, after 119 years of India operations, the bank has carved out its own space in the consumer segment pioneering some of the services.

Citi set up its first office in India in 1902 and, according to the information on its website, helped lay the foundation of the Indian software industry by establishing Citicorp Overseas Software Ltd and Iflex Solutions Ltd.

While the merits of Citi's global decision will be debated, an era has come to end for the local unit of the bank in the Indian market.