With its credit card and consumer finance portfolios ?hurting?, Citi India is currently giving shape to a new strategy in both these areas to tackle delinquencies in the new high interest rate environment. Simultaneously, the bank is being extra vigilant to ensure the economic slowdown does not lead to mounting non-performing assets in its substantial SME portfolio as well.
The key elements of the credit card clean up are to reduce dependence on direct sales agents, maintain a sharp focus on how cards are originated, put in place strict underwriting norms and step up collection efforts. The new strategy for Citifinancial, the bank?s consumer finance arm, will centre on origination of loans, and have an accent on ?eye-to-eye? lending.
Citi India CEO Sanjay Nayar told FE that both the cards and consumer finance businesses were ?hurting?, but the new strategy was to ?hang in there? and remain close to clients while the clean up took shape. While revenues were equally divided between corporate and consumer banking, profits were clearly skewed in favour of the former, as the latter faces a delinquency threat, primarily from credit cards and unsecured loans.
Citi, which was once the largest credit card issuer, has dropped to fourth place, as the bank focuses on improving the quality of its card assets. ?We are now focusing on cross-selling cards to our other customers, and aiming to make the credit card the most important item in the wallet and more of a payment instrument,? Nayar explained, adding: ?Our cards portfolio is the best in the industry now. If it?s still hurting, you can imagine how bad the industry numbers must be.?
According to industry sources, ICICI Bank is currently the country?s biggest credit card issuer with around 8.5 million customers. It is followed by HDFC Bank, which has a credit card base of about 4 million. The number of credit cards issued by the entire banking industry at the end of June 2008 was 27.02 million, against 24.39 million in June 2007. Public sector banks issued 3.8 million, of which SBI Cards, a joint venture with GE Money, issued 3.09 million. Citibank, at number four, has around 3 million credit card customers.
In consumer banking, the Citifinancial strategy will be visible by September-October this year, Nayar said. Here, too, the focus is on changing the method of origination. The hub of activity will now be the bank?s 350 branches (down from the earlier 450 or so). ?As you grow and get in more direct sales agents, you begin to lose control over origination. We have re-established the method of origination. We have cut down some branches that did not look good. Now, we have an optimal number of branches and cities,? he said.
Citifinancial India, which saw a 64% drop in profits in the first half of FY08, is now focusing on collection efforts, making greater use of mobile commerce and also depending on analytics. ?We have identified segments which are behaving badly in some cities and are fine-tuning them. That will help us decide which segment to originate the business from. We?re not getting away from it, because then borrowers go back to the moneylender,? Nayar said.
The distribution channels will now be used to sell more products. ?If there is someone with an unsecured loan, we can sell them a secured loan, and, maybe, even a small unit-linked insurance plan. The service, turnaround time and processes will now distinguish us from competition.?
The SME portfolio, he said, could see stress from many angles. ?Interest rates, fuel, rupee movements will all affect SMEs first. We had already begun to tighten the origination methodology: whom we are banking with, who the promoters are. So far, things are alright, but that is potentially an area which could deteriorate.?
Citibank saw a 65% rise in its PAT for the year ended March 31, 2008 on account of healthy performances in transaction services, fixed income, treasury and market activities.