Citi’s sale of India consumer business to Axis Bank marks the end of an era

Citi on Wednesday announced an agreement with Axis Bank Ltd for the sale of its consumer businesses in India for $1.6 billion. Axis was chosen following an extensive and competitive auction process, said Citi.

The sale covers the consumer banking businesses of Citibank India, which includes credit cards, retail banking, wealth management and consumer loans. “The transaction also includes the sale of the consumer business of Citi’s non-banking financial company, Citicorp Finance (India) Ltd, comprising the asset-backed financing business, which includes commercial vehicle and construction equipment loans, as well as the personal loans portfolio,” said Citi in a statement. 

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The deal has been in the offing for more than a year now, with various banking and financial institutions weighing in on a purchase. While Citi will continue to operate its institutional client businesses in India, its exit from the consumer banking business marks the end of an era for the global banking giant, which has been present in India for 120 years now. 

Banking pioneer 

The US-based giant has been a banking pioneer in the Indian market, introducing several innovations down the decades. “Citi has been present in India since 1902 and is a banker of choice for large and mid-sized corporates, financial institutions and multinational companies operating in the country,” said the company in its statement. 

It has been no less a key mover in the consumer banking space. It pioneered plastic money in India, populiarising credit cards, debit cards and ATMs in India during the 1980s. It was following its success that other private banks as well as public sector banks began to tap the cards market. 

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Today, the Citibank credit card programme is seen as a key addition to Axis Bank’s portfolio. It has a wide range of products as well as trained staff in its cards department. 

Stressed margins

Notwithstanding its early bird advantage, Citi began to see its consumer business’ profits slide amid rising competition, both from MNC banks and domestic players. Despite the extensive use of technology, its consumer banking business has been seeing margin pressure, said analysts. Running the business required heavy capital, which did not yield sufficient gains. 

Not just Citi, but several global banking firms have been finding the going tough in the Indian market. Most MNC banks, such as Barclays, ANZ Grindlays, RBS, and Commonwealth Bank of Australia, have either trimmed their operations here or exited altogether. The exception is Singapore-based DBS Bank, which has not only expanded its presence in India but also acquired homegrown Lakshmi Vilas Bank.

Regulatory hurdles

Among the key challenges for foreign banks operating in India are the regulatory stipulations. Under the RBI’s priority sector lending (PSL) norms, banks have to allot 40 per cent of their loans to segments earmarked by the Centre as strategic. This severely constrains their lending strategies.

There are also strict laws around operating local branches and subsidiaries in India. The latest norms on mandatory data localisation are said to have exacerbated the problems.