The country’s top tier private banks including HDFC Bank, Kotak Mahindra Bank, Axis Bank and IndusInd Bank are among the potential suitors who likely bid for Citi’s consumer business.
At least four domestic banks likely submitted binding bids to acquire Citibank’s India consumer business as the deadline ended on October 22, CNBC-TV18 learnt.
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The country’s top tier private banks including HDFC Bank, Kotak Mahindra Bank, Axis Bank and IndusInd Bank are among the potential suitors who likely bid for Citi’s consumer business, said two people in the know.
"The deadline to submit bids ended as of 3:00 pm today (October 22), and all I can say is we are open to all opportunities and evaluating prospects closely," said the chief of one of the banks that has bid for Citi, but he did not wish to be quoted.
While DBS had initially shown interest and even participated in the last round of presentations made for the Citi acquisition, it is understood to not have submitted a binding bid for the India business, as per another person involved in the matter.
It was speculated that the sale would draw huge interest, the valuation sought by Citi may have deterred a few from participating, according to one of the people quoted earlier. The bids that are eventually received may be depressed as Citi has lost a lot of market share in India, this person added.
"Citi has been losing customers every month since it announced plans to exit, and has lost quite a bit of market share, so the business is not as attractive as it was a few months ago," said a senior executive at a large private bank on the condition of anonymity.
Credit Suisse recently said in a note, "For the larger private banks, Citi's retail business (primarily credit cards and mortgages) adds only 3-6 percent to their loans and deposits. It is more significant (13-20 percent) for Kotak and IIB (IndusInd Bank), and its 2.6 million cards base is a key asset that will more than double their current card base. Its saving franchise is also attractive and adds 30 percent to Kotak and 60 percent to IIB saving deposits."
“At $2 billion valuations, this acquisition would erode 140-560 bp of CET1 for the acquirer. Kotak with surplus capital (15.8 percent CET even post-acquisition) is better placed, while Axis and IIB will need to raise capital (6-16 percent dilution) to fund this," CS said in its note.
"Full benefit of acquisition will be contingent on what the cross-sell acquirer can achieve on Citi’s 2.5 mn premium retail liability customers. Use of surplus capital for it could help push up Kotak’s ROEs by 400 bp to 15.5 percent (though P/B multiple will also rise to 5.3x from 4.4x). For HDFCB and ICICI, ROEs would improve 130-180 bps," Credit Suisse said.
Citi's India Exit
While announcing its first-quarter earnings for 2021 in April this year, Citigroup’s global CEO Jane Fraser announced the bank’s exit from consumer banking in 13 countries including India.
"While the other 13 markets have excellent businesses, we don’t have the scale we need to compete. 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. We will continue to update you on strategic decisions as we make them while we work to increase the returns we deliver to our shareholders," Fraser said.
India is among those 13 markets where Citigroup has decided to exit from consumer banking. The other 12 countries include Australia, Bahrain, China, Indonesia, Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam.
The bank has been in India for 119 years, since 1902 when it started operations in Kolkata. It currently has 35 branches across the country and employed 19,235 people as of March 2020.
Citibank India’s financials
Citibank operates in India as a branch of the global giant Citigroup and has a balance sheet size of Rs 2.18 lakh crore. The other two big foreign banks in India are HSBC with a balance sheet size of Rs 2.11 lakh crore and Standard Chartered with Rs 1.84 lakh crore in 2019-20.
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Its retail book is primarily led by mortgages and credit cards, with a strong focus on premium customers. Citibank India serves 2.9 million retail customers, with 1.2 million bank accounts and 2.2 million credit card accounts as of March 2020. Citibank India is one of the country’s leading credit card issuers, with around 6 percent market share of retail credit card spending in the country.
The bank reported a profit after tax of Rs 4,912 crore as of March 2020, versus Rs 4,185 crore in the previous year. Citi will report its FY21 numbers only in June this year. As of FY20, its Net NPA ratio stood at 0.6 percent, vs 0.5 percent in FY19. Its CASA ratio stood at 55.8 percent, and total capital adequacy at 15.9 percent as of March 2020. Its total assets, including credit extended to Indian institutional clients from offshore Citi entities, stood at Rs 299,250 crore as of March 31, 2020. It has a deposit base of about Rs 1.57 lakh crore.
Its India business includes retail banking, wealth management, credit cards, and mortgages, investment banking and treasury and trade solutions.
HDFC Bank, Kotak Mahindra Bank, Indusind Bank and Axis Bank were yet to respond to CNBC-TV18's query at the time of publishing this story.
(Edited by : Jomy Jos Pullokaran)