 "Citibank, citigroup, foreign banks")
An intense pricing war can be expected among potential suitors for Citibank India’s assets as virtually every bank would line up to acquire its retail business, in part or full, analysts say.
However, the process to exit the business and find new buyers will not be hurried and will likely take more than a year to complete, they say. As of now, business continues as usual, and one can still open accounts with Citibank and get credit cards, if qualified.
Citigroup on Thursday announced that it was exiting retail banking in India and 12 other countries across Asia and parts of Europe to focus on its wealth management business, as it lacked the “scale” to compete in this space.
The most attractive buying opportunity will be the card business of Citi.
“In India’s retail segment, Citi has built a strong presence in credit cards where it has a 6 per cent share in total spends. It also has 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,” wrote Prakhar Sharma, Parameswaran Subramanian, and Bhaskar Basu of Jefferies in a note on Friday.
According to the Reserve Bank of India data, Citibank has 2.64 million credit cards and 1.66 million debit cards outstanding, and was the sixth largest issuer of credit cards in India at the end of February 2021. The average per credit card spend worked out to be around Rs 11,630 for Citibank, going by the data
The average credit card spend for all the card issuers, including Citibank, work out at Rs 9,790. Excluding Citibank, the average per credit card spend would be Rs 9,708. Therefore, Citibank’s average card spend is close to 20 per cent higher than the industry average.
Macquarie noted that Citi has consistently had 15-25 per cent higher spend per card against the industry average, indicating higher spending power of its card holders.
However, analysts also say that even as this could be a very attractive value for Indian banks, considering Citibank’s global scale, the amount could be paltry for the parent.
The parent bank now wants the India operations to focus on wealth management, in which Citi India ranks fourth in the country.
The retail segment formed 14 per cent of the bank’s total pretax profit. Importantly, asset quality has been stable with the overall gross non-performing assets (NPA) ratio in December 2020 at 1 per cent for India and retail 90-day delinquency at 1.9 per cent.
This is much better than its competitors, considering the pro-forma NPA of SBI Cards was at 4.51 per cent as of December 31, 2020. This is also partly due to the fact that Citi decided not to grow its card business or even the retail segment even as its competitors expanded their retail book to compensate for contraction in corporate lending.
Macquarie noted that Citibank grew its credit cards only at 1.6 per cent compound annual growth rate over the last 10 years. As a result, the bank lost its market share in terms of spends and cards outstanding, coming off from 20 per cent and 13 per cent, respectively, a decade back to just 5 per cent and 4 per cent as of January 2021.
According to a person who worked with Citi’s retail division, the reason why Citi did not go for retail expansion was because the global management wanted it to focus on premium customers only. “It was an ultra-conservative approach. If the management just wanted it to be conservative, then the card numbers would have been much higher while NPAs would go up only slightly. But Citi decided to go for the cream,” said the person.
Now some of that conservatism may have come to haunt the 119-year old bank that has a brand recall value of over 80 per cent, according to a brand survey.
“There will be no rush in selling the business, and the RBI will ensure it goes to a responsible buyer, but the Indian banking industry will lose out on a lot of innovation that Citi could have offered in the future,” said the banker.
Citibank was the first in introducing a plethora of services for the customers that have been adopted rapidly by local banks and are taken for granted now. These include phone banking, SMS banking, and even offering a dedicated centralised call centre for customers. The bank also offered India’s first consumer credit cards in 1987.
Existing players would queue up for that legacy and quality.
Given Citi’s higher mix of premium cards and corporate salary account cards, “there could be a lot of interest" among both large players like SBI Cards, ICICI Bank, and Axis Bank that are looking to increase their premium cards, as well as from smaller issuers such as RBL, IndusInd Bank, and IDFC First, Macquarie said in its report.
Among its various business verticals, analysts say Citi’s credit card business will be most sought-after. This business vertical in the retail segment of Citi, they believe, should get a premium valuation.
“Citi’s credit card business is big and draws a lot of affluent people. There will be many suitors, especially Indian private banks like ICICI Bank, Kotak Bank and Axis Bank who will move aggressively to acquire Citi’s credit card business. SBI Cards, too, could be in fray but may not pursue it as aggressively as private banks. HDFC Bank could be out of the race (as things stand) due to a regulatory order that prohibits it from issuing fresh credit cards,” said G Chokkalingam, founder and chief investment officer at Equinomics Research.
Citi’s exit may also pave the way for consolidation in the Indian financial sector with private sector banks, including ICICI Bank and Axis Bank, vying for an increased market share across business verticals, say analysts. SBI Cards, they believe, could be another beneficiary.
Those at Jefferies, for instance, suggest opportunities could open up either to acquire the existing stock of Citibank's clients and/or gain market share in segments like credit cards, deposits, and retail loans.
Citi’s presence in India is via branch operation (of the global bank). Citi in India has $4.1 billion in assets in the retail segment, which is 1.5 per cent of total assets under management (AUM). In fiscal 2019-20 (FY20), Citi had reported a profit of $658 million in India. The retail segment, according to reports, formed 14 per cent of the total pretax profit.
On Friday, SBI Cards gained 8 per cent to Rs 976 on the BSE in the intra-day trade. In the past three days, the stock has gained 10 per cent, after correcting 22 per cent from its record high level of Rs 1,149 touched on February 24, 2021.
