In March, just a week before Citibank India announced the sale of its consumer assets to Axis Bank Ltd, the Hongkong and Shanghai Banking Corp Ltd, India (HSBC India) put out a half-page advertisement in leading business papers, asking: “What’s beyond the city?” The answer? “Only the entire world.”
The British bank was wooing customers of the US bank in India.
Once the deal was announced, Axis Bank, the acquirer, retaliated, releasing an ad that said: “The city never closes. It stays open.” The fine print added, “Welcome to a world of unparalleled privilege, unmatched service and constant growth.” (Remember the slogan, “The Citi Never Sleeps”, first used by the US bank in 1977?)
The ad war, targeting Citibank’s three million customers and 2.5 million credit card holders, adds a new dimension to the debate on how lucrative the Indian market is for foreign banks.
Many believe the market is losing its sheen and foreign banks are finding it difficult to compete with some of the nimble-footed private banks and even a few large state-owned banks that are fast and flexible in developing products and processes. These tech-savvy banks, which have a vast branch network, are continuously innovating on the retail turf for customer acquisition.
There is also a view that the emergence of fintechs has added to the woes of foreign banks, which typically follow the captive customers of their respective nations. It is ironic as HSBC Bank in India commissioned the first ATM in Mumbai in 1987, 20 years after the first cash machine was commissioned by the Barclays Bank Enfield branch in north London.
Citibank closing down its consumer banking division in India — along with 13 other markets — has strengthened the growing belief in the analyst community that global banks have a limited role to play in retail markets outside their home countries unless they splurge on technology, staff and innovation.
The list of foreign banks quitting India is long.
In 2008, Dresdner Bank gave up its licence; Deutsche Bank sold its credit card business to IndusInd Bank Ltd in 2011; Morgan Stanley and UBS AG surrendered their licences in 2013.
Over the past decade, Standard Chartered Bank sold its asset management company and closed down its institutional cash equities, equity research, and equity capital markets; JPMorgan surrendered its licence for a non-banking financial company; Royal Bank of Scotland wound up its multiple divisions; and HSBC India closed down its private banking business.
The list doesn’t end here. The retail dream of the UK’s Barclays Bank and South Africa’s second largest FirstRand Bank, which had been in India for 12 years through a single branch in Mumbai, has turned sour; Abu Dhabi Commercial Bank exited India; and BNP Paribas closed its wealth management business.
There are more such instances. In October 2020, Westpac Banking Corp, Australia’s oldest and second-largest lender, cut jobs and withdrew from a few markets, including India, to consolidate its overseas operations into three hubs –Singapore, London and New York.
In November 2021, following a strategic review of its business in India, Rabobank Group decided to close its Mumbai branch after more than two decades in India. Just a month before that, Krung Thai Bank PCL’s Mumbai branch had announced it was closing down operations in India.
As a result of all this, foreign banks’ share in the Indian banking industry has been shrinking. In 2021, their share of deposits was 5 per cent, and of loans and advances even less at 3.9 per cent. Despite few foreign banks closing down operations, the number of branches has almost trebled.
That’s because of Singapore’s DBS Bank taking over Lakshmi Vilas Bank Ltd, the first instance of a foreign bank growing through acquisition locally. Still, their share is less than half per cent of the total branch network.
DBS is one of the two foreign banks that are locally incorporated, the other being State Bank of Mauritius (SBM).
While many such banks are finding it difficult to expand their consumer business in India, a few see opportunities opening up even as the definition of retail is undergoing a sea change.
A November 2020 Economist report said the share of wealth and income going to the top one per cent has been expanding rapidly in recent years in India, as has been the case in many countries. In 2019, this one per cent hoovered up 21.4 per cent of earnings, just ahead of their counterparts in Russia, according to the World Inequality Database.
A recent Oxfam report says India is one of the fastest growing economies in the world but it is also one of the most unequal countries. Inequality has been rising sharply over the last three decades. The top 10 per cent of the Indian population holds 77 per cent of the total national wealth. It also says that 73 per cent of the wealth generated in 2017 went to the richest one per cent, while 67 million Indians who comprise the poorest half of the population saw only a one per cent increase in their wealth. Finally, billionaires’ fortunes increased by almost 10 times over a decade and their total wealth is higher than the entire Union Budget of India for FY19.
A few foreign banks, including HSBC India, the largest by assets, are seeing enormous opportunities here — financing high-end mortgages, managing wealth, sending money overseas, and tapping the children of this class of Indians overseas where they are studying, meeting all their banking needs, among others.
This is something Germany's Mercedes-Benz is doing — betting big on an expanding pool of young new millionaires to drive demand for luxury cars in India, creating faster sales growth, than for mass market cars.
A recent Reuters report quoted Martin Schwenk, chief executive of Mercedes-Benz India, talking about India’s increasing numbers of “dollar millionaires”, including young entrepreneurs and high-earning professionals who appreciate the luxury and technology of the car. ‘The base is getting broader and gradually moving beyond our traditional customers.” Going forward, he sees higher growth rates in the luxury segment than the mass market.
Some of the foreign bankers are speaking the same language. They are not willing to explore the mass market, fighting it out with the local banks. Their target is the wealthier segment, which has been growing at a speed never seen before — the cream of retail business.
Of course, there is another model, which SBM is adopting — collaboration with fintechs and stepping in wherever there are gaps for opportunities, including supply chain financing and the business of secured credit card.
Fintechs are playing a critical role in the new game being played on the banking turf for both the markets — mass and affluent. They have the customers in their pockets but they don’t have the products such as loans and deposits. Besides, they are not into risk management and the process of underwriting. The banks are willing to use these customers to sell their products for a fee. A collaborative approach.
From B2C (business to consumer), they are changing their strategy from B2B for C (business to business for consumer). This is the new strategy of some of the foreign banks on Indian soil to stay relevant and grow in the world’s sixth largest economy.
The writer, a consulting editor with Business Standard, is an author and senior adviser to Jana Small Finance Bank Ltd
His latest book: Pandemonium: The Great Indian Banking Story