These aren't the best of times for Citigroup Inc. It may be theworld's largest bank with a market capitalisation of $252 billion,but the stock price has been stagnating in the $45-50 per shareregion for close to two years now on the New York Stock Exchange.Recent reported cuts of over 15,000 jobs to bolster profitability atthe 399 Park Avenue-headquartered bank hardly came as a surprise toanalysts tracking the global giant. And when Charles O. "Chuck"Prince, Chairman & Chief Executive, took home an annual compensationof almost $26 million in 2006--a year in which Citigroup's net incomefell by 12 per cent--shareholders weren't exactly nodding inapproval.
Cut to Asia, where Citi it would seem is an altogether differententity, both in performance and action. Take China, for instance,where Citi has over the years acquired strategic stakes in twoChinese banks. In late 2003, it picked up 4.62 per cent in ShanghaiPudong Development Bank, and plans are to take it up to 20 per cent.Last July, Citi also bought 20 per cent in Guangdong DevelopmentBank, which was considered a coup of sorts in the mainland'srestricted banking environment. Then there's South Korea, whereCitibank took over one of the largest local banks, KorAm Bank, inJanuary 2004. Such progress in non-traditional markets would be goodenough to make Chuck (as he is known within the bank) smile.
The progress in India should make him beam. Chuck, CEO since 2003and Chairman since 2006, was in India in March this year, a day afternews of massive job cuts at Citi seared news wires globally. ButChuck was in high spirits, and not just because he was thousands ofmiles away from the heat. "The bank will focus on two or threecountries outside North America, including India, for growth,"revealed Chuck to Citi staffers in New Delhi.
Clearly, at a time when Citi is struggling to grow in singledigits in the developed world, Asian economies like Japan, China,South Korea and India are the bank's best bet to return to the glorydays. Chuck, who began his career in 1975 as an attorney in us SteelCorporation, is now driving a business strategy to make internationaloperations a big contributor both to the group's global topline aswell as bottom line. He wants the international portfolio to accountfor 60 per cent of revenues in the next 3-5 years, up from thecurrent 45 per cent.
His India A team is in sync with that strategy. "We have a strong,broad-based franchise in India led by innovation in products anddistribution. We are committed to being a dominant player in eachsegment we are present in to further grow our balance sheet," saysSanjay Nayar, CEO India & Area Head (Bangladesh, Sri Lanka andNepal). Beyond banking, Citi has aggressive plans to grow in emergingbusinesses like commodities, structured products, microfinance,retail broking, and asset reconstruction. The group's already goingfull steam ahead in areas like non-banking finance, investmentbanking and private equity.
"If you are a customer of Citi, it doesn't matter which productyou choose, it's a passport to every other product of Citigroup.That's really the enabling approach for us," says S. Jayakumar,Country Business Manager (Global Finance Group) Citi India.
As a standalone banking operation, Citi is indeed the mostdominant player amongst foreign banks in India, having recentlydisplaced arch-rival Standard Chartered in terms of balance sheetsize as well as revenues. In 2006-07, Citi amassed a balance sheet aslarge as Rs 66,358 crore in India, pushing StanChart, which enjoyedthe largest foreign bank status for six years before that, to thesecond position with Rs 58,853 crore. "Lending to SMEs (small &medium enterprises), retail loans and mortgages contributed the mostto the balance sheet growth (in 2006-07)," explains Nayar.
In 2006-07, the group's loan & advances grew by 34 per cent to Rs32,860 crore, while deposits grew much faster by a whopping 36 percent. The biggest contributor to growth was mortgage finance, up by50 per cent; the unsecured loan portfolio followed with a 48 per centgrowth. "Wealth management is another area that is growing rapidly,"says Rahul Soota, Head (Retail Banking), Citibank.
Banking analysts, however, say Citibank has still a long way to gobefore it can truly crown itself king of the hill in the foreignbanking space. After all, StanChart is still the most profitable bankin India with a huge bottom line of Rs 1,364 crore as against Citi'sRs 900 crore; it also leads in terms of deposits as well as advances.
Nayar, for his part, knows that celebrations today would bepremature. And he's got a game plan for fast-track growth in theyears ahead. "We serve a range of clients from the largestcorporations to the retail customer with business models specificallytailored to their needs," he says. Consider, for instance, the $2-billion SME portfolio that's growing at 50-60 per cent annually. "SMEis an engine of growth as it continuously acquires clients, many ofwhom become future champions," says Sandeep Ghosh, Head (SME),Citibank.
The SME business is strategic to the bank as it also drivesinvestment banking (equity & debt raising as well as mergers &acquisitions) and private equity. Take for instance, SME clientHimadari Chemicals, which has also provided an opportunity for groupcompany Citi Venture Capital International (CVCI) to pick up a stakein that company. Indeed, the private equity arm is readying to invest$1.5-2 billion in the next three years out of its global $ 4.5-billion fund. "We are in the business of identifying greatentrepreneurs. This has been the key driver for our success," saysAjay Relan, MD, CVCI. "With our unique, customer centric businessmodel, we have the capability to comprehensively address all banking,capital markets and advisory needs," adds Nayar.
That model clearly extends beyond traditional banking--after all,banking accounts for 57 per cent of the group's profits. Unlike theothers in the foreign banking pack, Citigroup already has a non-banking finance company (NBFC) in the shape of Citifinancial ConsumerFinance (India), which boasts a $2.5-billion balance sheet. It isalso the third-largest contributor to group profits (see A BottomLine Break Up). The Indian arm of Citifinancial Global, with anetwork of 450 branches, is the single largest consumer financecompany in terms of balance sheet size and the largest Citifinancialoperation outside the US. "We opened 150 branches last year and ourdistribution strategy is flanked by store alliances (withhypermarkets, for example) and the internet," says Sandeep Soni, MD,Citifinancial.
Yet another booming business for Citigroup is global M&A. In thejust concluded fiscal, Citigroup Global Markets (India) has emergedas the second largest contributor to the group's India profits byplaying advisor--and financier--to some of the biggest globalacquisitions made by Indian corporations. These include Tata Steel'sbuyout of Corus (where Citigroup global represented the Tatas), UB'stakeover of the UK-based Whyte & Mackay (where Citi providedacquisition financing of $619 million). What's more, Citi financedM&A worth $15 billion in 2006-07. The investment bank also helpedarrange convertible bonds worth $480 million for JSW Steel, EraConstructions and Core Projects & Technologies. It also handled $2billion foreign currency bond offering--India's largest-- for ICICIBank. "We do not compromise on credit standard. We have prudentlending norms and are not doing zero-fee deals just to garnerbusiness. We have financed some of the largest global acquisitions byIndian companies," says Nayar.
In the medium to long term, the billon dollar question is whetherCiti goes on to increase its 12 per cent stake in housing financemajor HDFC, which, in turn, controls HDFC Bank, whenever regulationspermit foreign banks to acquire domestic banks. After all, Citi hasbeen following a similar game plan in other growth markets like Chinaand Korea, and the India road map may not be too different.
THE JOURNEY SO FAR
How Citi has evolved as a group.
Brought in $2.6 billion in capital, the largest FDI in financialservices
A balance sheet size of Rs 84,469 crore
Group revenues of Rs 7,315 crore
Net profit of Rs 1,566 crore
India employee strength of 22,000
CITIBANK INDIA
Operates as a branch of Citibank NA.
39 branches, 443 ATMs and present in 27 cities
Over 5 million retail customers
Growing SME client base of over 5,000 with up to Rs 800 croreturnover
SME coverage includes textile industry, pharma & IT/ITES
CITIFINANCIAL CONSUMER FINANCE
Registered as an NBFC.
475 branches, of which 150 came up last year
Present in 160 cities
2.2 million customers
Average ticket size of a loan from Rs 20,000 to Rs 3 lakh
CITIGROUP GLOBAL MARKETS INDIA
A separate capital market entity registered with Sebi.
15 M&A deals worth $22 billion from June 2006-May 2007
Raised $2 billion across 120 equity and equity-linked transactions
Arranged largest ever $2-billion bond offering for ICICI Bank
Loan syndication for Reliance Petroleum amounting to $2 billion
CITI VENTURE CAPITAL INTERNATIONAL
A global private equity arm that also invests in India.
Recently took a controlling stake in equity broking firm Sharekhan
Has invested $600 million in 2007-08 so far
Investment portfolio includes 25-30 companies
$1.5-2 billion to be invested in India through a new $4.5- billionglobal fund
BETTING BIG AND LONG TERM
Citi has a game plan, which may include a big-bang acquisition.
Has 12.3 per cent stake in housing major HDFC which controls HDFCBank, HDFC Standard Life Insurance and HDFC General Insurance Company
Has 5 per cent stake in newly-formed SMERA, a rating agency foremerging small and medium enterprises
Has 5 per cent stake in CIBIL or Credit Information Bureau IndiaLimited, which houses credit information (both good and badborrowers) of retail and corporate clients
Has 4.4 per cent in a first of its kind bad assets recoverycompany, ARCIL
Has 3.75 per cent in NSDL or National Securities Depository Ltd
