The story behind Citi bank exit in India-

In 1902 Citi Group started its operation in India (Kolkata). Citi bank has played a leading role in establishing important market intermediaries such as depositories, credit bureau, clearing, and payment institutions. With that, it brought some early innovations in India such as ATM, Credit-card, Internet Banking, and more.

On 15 Apr 2021, Citi announced that it will exit the consumer banking operations in India, Australia, Bahrain, China, Indonesia, Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand, and Vietnam. The bank said that its institutional client group will continue to serve customers in these 13 countries.

Their main concentration will be in Hong Kong, UAE, London & Singapore apart from the United States.

Why did Citi bank exit India consumer business?

Now Citi bank isn’t the first to take this kind of step. Before Citi bank Barclays, Morgan Stanley, BOA Merrill Lynch has shut or sold their parts of the portfolio from India.

Why the Citi bank take such kind of a step where they had this huge number of customer?

For foreign banks, retail is a tough game in this country. It has always been so.

Over the years, Citibank has been facing challenges from domestic competitors in India.

Now we need to see how the business stood till last year.

What the numbers are saying, in 2018-19, retail contributed 34 percent and corporate 46 percent, according to the details available. Thus, the retail business had been struggling. The bank had close to 30 lakh customers in retail, 22 lakh credit cards, and 12 lakh bank accounts, as of March 2020. It had around six percent market share of credit card spends in December 2020. The bank had advances of Rs 66,507 crore and deposits of Rs 1,57,869 crore. Citi’s retail revenue contributed 30 percent to the total in March 2020, while corporate pitched in with 50 percent.

Why Citi bank exit from India?

 The percentage of non-performing assets (NPAs) to net advances has gone up to 0.56 percent as of March 2020 from 0.51 percent in the previous year.

Return on assets slightly moderated to 2.55 percent from 2.57 percent and business per employee improved to Rs 43.6 crore in FY20 from Rs 37.6 crore in the previous year. Interest income declined to 6.73 percent from seven percent during the period.

Now if we see clearly there was no big reason for Citi to hold on to this market & the exit made sense.

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Let’s get to know more in details about the obstacles Foreign banks has/had to face in India

In the aftermath of the global financial crisis and building on the lessons from the crisis, the RBI issued a Discussion Paper in January 2011 on the mode of presence of foreign banks in India.

It was decided to allow foreign banks to operate in India either through branch presence or they could set up a wholly-owned subsidiary (WOS) with near-national treatment, which refers to equal treatment on regulation with local domestic banks.

The privilege of ‘near-national treatment’ came in with a big burden of compliance or consent. The main rules or regulation which foreign banks faced maximum difficulties is Priority Sector Lending & the rule is if the foreign bank wants to incorporate locally and wants to be treated at par with local banks, they will have to comply with a norm that requires at least 40 percent of the overall loans be given to economically weaker sections.

This needs to require feet on the ground in order to complete the retail banking business. Foreign banks couldn’t expand their business like the local ones due to high-cost infrastructures.

Now if they get the permits for branch only model from RBI, then also its hard to compete with the local ones,

BanksTotal no. of branches
State Bank of India24,000
HDFC5,608
Axis Bank4,800
Standard Chartered Bank100
Standard Chartered Bank is the leading foreign bank in India.

Citi will henceforth focus on institutional business, which wouldn’t require a lot of branches and people. That’s a relatively safer bet for the global bank in India.

Ashu Khullar, CEO of Citi India said in a statement post the global announcement: “We will continue to deliver our innovative digital solutions, backed by our global network, and devote our resources to large and mid-sized Indian corporates and multinationals, financial institutions, start-ups in the new age sectors, amongst others. India is a strategic talent hub for Citi. We will continue to tap into the rich talent pool available here to continue to grow our five Citi Solution Centers which support our global footprint.”

Quotes of Experts,

“If you are not among the top three players in a market, then the question is whether you want to be in that market at all,” said Sanjiv Bhasin, former India head of DBS Bank.

“In the last two or three decades, Indian banks have garnered much more meaningful share of retail banking and with digital penetration, their reach has more market share Citi has been challenged by ICICI Bank, HDFC Bank, and Kotak Mahindra Bank quite impactfully,” said Bhasin.