Citi India arms feel sub-prime pinch

May close branches, bank relocates ATMs.

The sub-prime loss-hit Citigroup is on a cost-cutting exercise in its Indian operations.

CitiFinancial, its consumer finance unit, which is also reeling under the burden of rising bad loans, is considering closing about 100 of its 450 branches in India.

Meanwhile, Citibank, the commercial banking arm, has begun shifting its ATMs from prime locations to less expensive ones. Banking sources said private sector banks like Yes Bank and HDFC Bank have bought some of the locations.

"In terms of cost-cutting, the bank is relocating ATMs. Citibank is relocating around 30 ATMs from high-cost locations to low-cost areas," said banking sources.

These steps are in tune with Citigroup's global efforts at substantially reducing costs according to plans drawn up by Vikram Pandit, who took charge as CEO of the world's largest financial services group after Chuck Prince exited following a $17.4 billion write-down on sub-prime related exposures.

In response to a mail sent by Business Standard, a Citigroup India spokesperson preferred not to comment on the closure of branches,

"CitiFinancial is not exiting the consumer finance business. We are committed to growing it further by adding new products to its portfolio. To service customers better, we are in the process of relocating some branches in select geographic locations," the response said.

The spokesperson added that CitiFinancial has not sold any ATM locations. "We have relocated some ATM premises, which is an ongoing process to better serve larger numbers of customers. We will continue to operate 480 ATMs across the country."

CitiFinancial India saw a 64 per cent drop in net profit in the first half of 2007-08. For the whole of 2006-07, CitiFinancial's net profit was at Rs 220 crore against Rs 170 crore in 2005-06.

In its rating rationale, rating agency CRISIL has said the decline in CitiFinancial's net profit in the first half of 2007-08 was largely due to higher delinquencies in the unsecured personal loans segment.

Spreads have also been under pressure due to increased borrowing costs and a shift in its loan portfolio towards a higher proportion of mortgage products, which have a lower yield than unsecured personal loans.

To contain credit costs in the unsecured personal loan segment, CitiFinancial is shifting focus to customers with better credit profiles but lower yields.

It is also increasing its focus on fee-based income through insurance distribution. However, the rating agency said the initiatives will benefit the company in the medium term and the pressure on profitability will continue in the near future.

According to reports, Citigroup is also in the process of closing its CitiFinancial unit in Japan and scaling down operations of the consumer lending arm in Mexico. CitiFinancial Japan has already reduced its branches to 51 from 324 in 2006.

Recently, GE Money, another US-based consumer lender, expressed its intentions to exit the personal loans and housing loans business in India.

Anil Ambani-promoted Reliance Capital, Kishore Biyani's Future Capital, Birla Group and Fullerton are believed to be potential buyers. Private equity players like JP Morgan and Goldman Sachs are also in the race. HDFC Bank, which has set up its own non-bank finance company, is also keen to acquire the business.

GE Money had exited the consumer durable and auto loan business in India earlier.