The decision by Citibank on April 15 to exit consumer and retail operations from 13 countries across Asia and Europe, including India, was sudden. It had all the markings of a foreign giant that’s on the move. Not many had taken the past murmurs seriously even as the increased competition and the expansion of India’s banking sector over the last few years curtailed opportunities for foreign banks in the country.

If Citi goes for a piece-meal approach and sells individual business segments to different players, it will surely draw a raft of banks and shadow banks as suitors, say senior bankers. The move, they believe, has enlivened the domestic banking industry.

The multinational bank, operational in India since 1902, had built a host of consumer businesses in the country, including credit cards, mortgages, and personal banking. As of now, Citi is the largest foreign lender in India.

One of the first banks to launch a credit card business in India, Citi had steadily built a high-quality customer base in the country to become the largest credit card issuer. Citi’s average card spend was among the highest in the industry. The concept of ‘foreign bank’ was introduced by Citi and pioneered phone banking services, SMS banking, and internet banking in the country.

“It is a good move,” Ashvin Parekh, managing partner of ‎Ashvin Parekh Advisory Services, tells Fortune India.

“Retail banking is more like an onion with several layers, with the tier-1, 2, and 3 are getting saturated and 4, 5, and 6 are getting opened up. It is not easy for foreign banks to expand into small towns,” says Parekh. The tier-wise classification of centres is based on population. Tier 1 comprises metropolitan and urban centres; tiers 2, 3, and 4 comprise semi-urban centres and tiers 5 and 6 comprise rural centres.

“Citi has been in India for many years. So, it would have evaluated the pros and cons well before taking the final call,” Parekh adds.

ICICI Bank and Axis Bank are among the larger players that may also evaluate buying out Citibank's business. Macquarie said the smaller players like RBL Bank, DBS Bank, IndusInd Bank, and IDFC First Bank could also be potential suitors.

Despite being one of the early entrants in India, Citibank has continued with the branch mode. Only two foreign banks—DBS of Singapore and State Bank of Mauritius, operate as subsidiaries while the remaining 44 operate through the branch mode. Some analysts believe that the tougher capital requirements for overseas banks in India may have forced them to hold larger buffers, leaving many foreign firms struggling.

Parekh argues that all foreign banks were given an option to set up subsidiaries in India, by the Reserve Bank of India (RBI), in 2013. At present, foreign banks, if eligible, are allowed by the central bank to set up business in India through a single mode of presence—either branch mode or a wholly-owned subsidiary mode.

As of March 2020, Citi had assets of ₹2.18 lakh crore, with a deposit base of ₹1.57 lakh crore. Using the network of 35 branches, it served around 2.9 million customers with 1.2 million bank accounts and 2.2 million credit card accounts.

Increased competition

The competition in India’s retail banking sector has intensified over the last few years, with private and public sector banks going an extra mile. This has restricted players like Citi to the major cities, while domestic banks have made forays into semi-urban and rural centres. What is more, while the payment banks as well as small finance banks have grown in niche markets, the UPI-based digital banking has seen an exponential growth, chipping away the market shares held by players like Citi.

Citigroup chief executive officer Jane Fraser said in a statement that the bank had decided it didn’t have the scale it needed to compete in India, China, and 11 other markets. As Citi decides to leave retail banking operations, other players such as DBS are still pushing ahead with their grow plans. In a deal blessed by the RBI, DBS Group took over a troubled local lender, Lakshmi Vilas Bank, but is now facing some lawsuits.

For the banks that are looking to scale up their credit card business, lapping up Citi’s card business is a good option. Though some bankers said it would be too early to take a call, Citi’s decision to quit the Indian market is definitely an opportunity for several domestic lenders. There is unanimity in their response that Citi is likely to get a multitude of bidders as retail banking is in vogue in the country today.

Citi’s credit card portfolio is estimated to be worth over ₹20,000 crore. Though it has shrunk the retail business, what makes it attractive for suitors is its high-quality portfolio since Citi still has an array of high networth individuals (HNIs) as its customers.

According to a note from Macquarie, SBI Cards & Payment Services, which got listed a year ago, could be a serious suitor. ICICI Bank and Axis Bank are among the larger players that may also evaluate buying out Citibank's business. Macquarie said the smaller players like RBL Bank, DBS Bank, IndusInd Bank, and IDFC First Bank could also be potential suitors.

Kotak Mahindra Bank and Piramal Group, which is focussing on retail, could also join the race.

HDFC Bank, the biggest player in the card business, may not be able to bid as it is bound by the restrictions placed by the Reserve Bank of India (RBI) on acquiring fresh customers.

According to a note by Credit Suisse, Kotak Mahindra Bank may be a key contender to buy out Citi’s retail operations.

A banker said the timing of Citi’s decision had taken the market and its employees by surprise. The decision came as a shock to around 19,000 employees spread across its 35 branches, he said.

For Citi, it however makes more sense to continue with corporate banking. “If you take India’s top 100 corporates, each one has operations abroad and they prefer foreign banks. Citi has good growth prospects there,” adds Parekh.

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