Globally, banks are in the midst of a turmoil. In India, however, the opinion is that banks are safe and will weather the storm. Sanjay Nayar, CEO, Citi, South Asia, spoke to Anirudh Laskar and Sidhartha on how the global situation will impact banks in India and what Citi is doing in tough times. Excerpts:
How will the global financial turmoil affect Indian banks?
Right now, I don’t see much impact. Though we have both local and global issues, banks in India are in great shape, and we should aim to create long-term structural liquidity to tide over the crisis. On the demand side, there has been a little slowdown, owing to domestic issues like high interest rates, increasing inflationary pressures and reduced profit margins. I do not see lending rates going down further because of these issues and a general lack of longer-term deposits or capital. Yes, we see a considerable amount of de-leveraging happening in the banking industry, but overall, India is somewhat insulated from the global crisis.
How will it affect companies and new projects?
Projects in the pipeline that have achieved financial closure will go through, but those in the planning phase may suffer. The number of projects that Indian banks used to take up for financing will reduce and project financing by banks will be affected. Others will get financing at a much higher price and they will have to see if the project makes sense. For banks, it means lower project finance and advisory business and slowing growth in credit.
RBI data suggest that there was a fall in your staff strength last year. Is this a part of a strategy?
We are a global universal bank in India catering to every customer segment. The universal banking model is unparallelled. If one business is not growing, the others are growing. We have over 11,000 people in the bank, up from 5,000 six years ago. We have not seen any reduction. We are growing in every segment today, except in unsecured loans. If you compare the April-May figures, when the MBAs join us, with the November-December figures, the number will always show an increase. The RBI data are at a point in time. Cost-cutting and re-engineering are things that we constantly look at and are currently very focused on. We are de-emphasising some businesses like auto financing and emphasising on others like wealth management.
On capital markets, activity may be slow now, but we have a large pipeline of deals. Once conditions improve, there is little doubt that capital markets will re-open. We are combining a lot of common activities like legal, HR and compliance services, where there was duplication under various verticals. We are combining middle offices. The back offices – where if there was one call centre for consumer banking and another for corporate banking — are being combined. In front offices, we are retraining our sales teams since we are realigning from a product-driven approach to a customer-centric model. When someone walks into a branch, a person will sell everything to a customer instead of having separate sales team for each product. There is a lot of re-engineering and sensible re-engineering going on.
How do you see your business evolving over the next two years?
More From This Section
We are staying on course with our organic growth strategy, driven by four essential trends. First, key demographic shifts are taking place in India with urbanisation and a changing lifestyle of customers. Second, Indian companies have always had great management talent and they will put that to use as they continue to explore overseas acquisitions. Next, savings rates have gone up dramatically and with exposure to equity at a meagre 10 per cent of disposable income, this will drive equitisation. Finally, technological innovations such as advancements in the C-to-C payment space will be vital.
In terms of our specific businesses, we intend to grow wealth management, commercial and SME and retail banking and banking for large corporates. We will continue to grow our retail credit book at over 15 per cent annually. On the corporate side, this year, the growth will be between 18 and 20 per cent. The SME lending business has been growing at over 25 per cent over the last three years and we intend to continue with that. If we do not grow at 15 per cent, we will be turning away business and this is not the time to walk away from a relationship.
What about delinquency?
For credit cards, where you actually get industry numbers, the industry average is around 11-12 per cent. Citi’s is half that number. On unsecured loans too, we are better than the industry. We still have a very good risk management system. We focus a lot on early-warning signals and we act on it.
We are moving to a multi-product relationship with our consumer finance customers and we are intensifying cross-selling to our cards customers.
What about Citi Financial’s sticky assets. Are you looking for buyers?
Our focus on Citi Financial right now is to re-segment the business to offer multi-product channels for the emerging middle class. We are not looking at exiting the business. This business is critical to financial inclusion in India.
Why are you looking at divesting your BPO business?
You know we normally don’t comment on this. But conceptually, a BPO will be better run by people who operate BPOs. We are a bank. The activity per se is non-core, though it is core to banking.
Do you see life changing from April 2009?
I do not see much of a change. There will be a new government and what was mentioned earlier was that there will be a review of the banking sector. But a lot of things have not changed since then (2004). For instance, there has been little consolidation in the banking space and that was to be a crucial precursor to the 2009 road map. We would be happy if we get more freedom on branch expansion. Foreign banks like us would welcome both organic and inorganic growth, but we’re not expecting any substantial changes in 2009.