- Banking
- 3 min read
Covid-led disruption, realisation that it is difficult to build a phygital model, regulatory hurdles in scaling up operations, competition from new and small finance banks, global focus on high yielding business pulled the plug on retail business.
- ETBFSI
- Published On Apr 19, 2021 at 07:57 AM IST
Read by: 100 Industry Professionals
Read by 100 Industry Professionals
Citi has decided to shut its India retail banking business, which includes credit cards, savings bank accounts and personal loans, as part of a global decision to exit 13 markets as the US-based lender focuses on a few wealthy regions around the world.
But why did the lender, which is profitable and has the biggest balance sheet among foreign banks which operate on a branch model in India, shut shop abruptly.
"We believe our capital, investment dollars, and other resources are better deployed against higher returning opportunities in wealth management and our institutional businesses in Asia," said Jane Fraser, CEO at Citi, while announcing the shutdown decision.
The reasons
Citi's decision to exit the market is an impact of the accelerated disruption caused by the Covid 19 pandemic which has forced large banks to refocus management bandwidth and capital across the globe, according to experts.
The disruption caused by Covid has forced all banks to realign their strategy as building a localised retail model especially in India where phyigital is emerging, is tough. Also, there is competition from new lenders like Bandhan and IDFC First and small finance banks.
Also, due to regulations, the bank was not able to build scale in consumer banking. To be sure, RBI has allowed foreign banks to set up branches or acquisitions if they shift from the current branch model to wholly-owned subsidiary model. DBS India shifted to the subsidiary model and has expanded hugely with the acquisition of Lakshmi Vilas Bank.
Citi has expanded its retail business in the early 2000s and was among the pioneers of corporate sector salary business with its Suvidha accounts, but was hit after the 2008 financial crisis globally, which saw the break up of the bank. It was then steered out of the crisis by Indian born CEO Vikram Pandit.
Citi India, which operates as a branch of the global giant, has a balance sheet size of Rs 2.18 lakh crore. HSBC with a balance sheet size of Rs 2.11 lakh crore and Standard Chartered with Rs 1.84 lakh crore in 2019-20.
Global focus on a wealthy few
“As a result of the ongoing refresh of our strategy, we have decided that we are going to double down on wealth,” Fraser said. The move to focus on the remaining markets “positions us to capture the strong growth and attractive returns the wealth management business offers through these important hubs.”
Advt
Under the new CEO Jane Fraser, who took charge a month ago, Citigroup’s equities desks, undersized among Wall Street’s giants, are proving strong enough to lift the firm to a record quarterly profit just as a new chief executive officer takes the helm.
SPACs all the way
The bank reaped the most revenue from stock trading in the first quarter since 2009, while fees from underwriting shares quadrupled, helped by the firm’s dominance in taking blank-check companies known as SPACs to public markets. That offset a slump in revenue from Citigroup’s massive fixed-income trading division.
“It’s been a better-than-expected start to the year,” Fraser said as she credited the “strong performance” of the company’s Wall Street operations and said the firm is optimistic about its outlook for the economy.
Citigroup has raised more than any other bank for special-purpose acquisition companies this year, as managers of the vehicles set out to hunt unspecified takeover targets. That helped the firm reap $876 million in fees from equity underwriting. Quarterly stock-trading revenue, typically less than $1 billion at Citigroup, surged to $1.48 billion.
- ETBFSI
- Published On Apr 19, 2021 at 07:57 AM IST
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