Citibank India clocked a 35% increase in its net profit in FY2011-12 and the bank helped Indian clients raise close to $16 billion from equity and debt market. Pramit Jhaveri, CEO of Citi India, believes that they would continue to maintain their leadership position on the investment banking side. Jhaveri tells Aparna Iyer that the bank would only focus on specific segments with higher spending capacity on its retail business.
Citibank has gotten aggressive in its retail franchise, especially on credit cards and loans. Is this a renewed and an increased focus on retail portfolio for the bank? What kind of retail growth is the bank targeting for 2012-13 and the next year as well?
Early last year, we articulated a well-defined segmented strategy for the consumer business. Our product portfolio now serves the interests of customers across salaried, the emerging affluent, affluent, high net worth, retail commercial and the non-resident Indian. This focused segmented approach allows us to build relationships with our customers, rather than drive product sales. At the same time, market infrastructure has significantly improved through greater credit bureau penetration and coverage, credit awareness as well as a more disciplined approach to lending by the banking industry. During this period, we sharpened our focus that allowed us to grow our loan book responsibly, serving over three million customers today. More importantly, spends on our cards are approximately two times the industry average. Today, when you look at our cost of credit, it is at a level we would like it to be and is consistent with the market. We are optimistic about growing our consumer business within our defined target segments.
Further to its retail growth, will the bank increase its branch network further? What kind of branch network size is the bank targeting by the end of 2013-14 and what geographies would be looked at?
We look to increase our branch network that is consistent with the policies of RBI. We have applied for additional branch licences to expand our geographical footprint in India. We also recognise the constraints for us operating in India, so we balance some of those with the opportunities that also exist. We have been focused on evolving a business model that finds a way to grow, and a way to be successful despite the size of the network. When we look at all the businesses that we operate in, either on the corporate side or retail, you will find that our market share is disproportionately higher than our physical footprint. Technology and digitisation are the defining trends today.
Among foreign banks, Citi has a strong investment banking group and has been among the top five dealmakers worldwide. What prospects are foreseen for the investment banking division in India? What kind of earnings and share in total business is the bank looking at?
For many years we have had the benefit and the opportunity of working with many great clients in India; in multiple geographies and across a variety of products to meet their growth objectives. We have been able to do this because of the uniqueness of the Citi platform and the people on the team who have been able to deliver the entire platform consistently to our clients. I say this because of the multiplicity of touch points that we typically have on an ongoing basis with our clients. For example, when we are fortunate enough to act for them in capital or advising them on important strategic initiatives, it is never a transactional mindset but a holistic and multidimensional relationship approach versus a unidimensional one.
India is readying itself to welcome more players into the banking space. This would increase competition. How do you think foreign banks would hold and Citibank in particular?
We are of the view that the Indian banking industry is undersized. Let?s look at one statistic: the loan-to-GDP ratio in India is around 53%. If you look at a country like Brazil, it is 56% and in China it is 120%. When you look at it in terms of size and penetration and India?s growth needs over the next few years, there is no doubt that the Indian banking sector is undersized. Further, in the new Basel III environment the capital needs of the industry will only further increase. Accordingly, the industry has not only room for some new, strong healthy institutions with sound credentials and financial strength but it is equally imperative for existing banks to grow larger and stronger, either through consolidation or organically. India has always been a hyper-competitive market from all perspectives. New licences will obviously increase competition. Their participation will add to the diversity and resilience of the banking sector in the years to come. In markets like India we welcome competition, as healthy competition tends to increase the market pie.
Your thoughts on the subsidiarisation model for foreign banks? Any concerns or impediments you see that need to be corrected?
We have had a lot of discussion over the subsidiary route and have since provided detailed views to the regulator on the draft circular. The subsequent announcements in regards to neutrality from a tax point of view of conversion of branches into wholly owned subsidiaries is a welcome positive step. There are certain impediments that still exist and we await the revised framework. If the regulations address these impediments we believe that this would present an opportunity for us. None of the issues around priority sector requirements are limitations to evaluate the subsidiary model. I would like to look at it as a glass half full as against a glass half empty.
What are the bank?s plans for India operations? Are there any specific segments that the bank would focus on?
We want to grow as large as our clients want us to be. If you look at large Indian corporates, there is a huge globalisation thrust. Indian companies now have significant global aspirations and we see that as an opportunity to help them achieve their ambitions. When you look at middle market India, there is an opportunity for more and more middle market companies to be part of the extended global and domestic supply chain. Furthermore, over the past decade, India has established itself as a hub for global champions in IT, energy and automobiles. Both these are obvious opportunities for us. On the retail side, wealth management is an opportunity. You have the NRI business which is very attractive, with more and more Indians looking at investing in India?the remittance numbers over the past year has increased significantly. And finally, our Indian consumer clients have aspirations to be ?Global Indians?. We continue to invest in innovations across payment products, digital and electronic banking across multiple platforms. Two of our customer initiatives launched last year, have been extremely well-received, namely ?Click to Call? and ?SMS to Call?. The twin services instantly connect customers to Citibank officers. Similarly, our recently launched mobile payment solution, allows card customers in India to make payments through their debit and credit cards from the comfort of their homes and offices. The secured paperless transaction not only does away with managing charge slips but also combines the many benefits of Citibank cards while using this mobile payment alternative.
Foreign banks have been pulled up by RBI time and again over their lack of participation in priority sector lending. Is there a reason other than costs for foreign banks to prefer the easier route in priority sector and financial inclusion?
We have consistently met all our priority sector targets in the existing regime. The revised guidelines applicable to foreign banks with more than 20 branches represent a formidable challenge especially in the agricultural segment given that we have only two semi urban branches and no rural branches but we are gearing ourselves up to meet the new requirements. We have submitted a detailed report outlining our plan to reach the targets over 2013-18 to the regulator following a cautiously calibrated approach. We will learn and adapt as we go along but we expect to achieve these targets in a combination of greater penetration of our existing market segments and coverage of new segments. We (along with other large foreign banks) are one of the major providers of export credit to clients in India with a steadily growing book year-on-year and are concerned that export credit delivery may be impacted as a result of loss of PSL status.