Citi may take subsidiary route to expand reach

Threatened by the spread of branch banking by private sector banks into Tier 2 and Tier 3 cities, Citibank is keen on the subsidiary route to expand its distribution reach. Tier 2 and Tier 3 cities are essentially small towns "" non-metros and big cities constitute the Tier 1 market.

Expanding into class B&C cities has become important for the Indian banking sector as banks move away from traditional industries to new ones like pharmaceuticals and BPO.

"The challenge today is to be in those cities where dealers and suppliers are located in view of the paradigm shift in business opportunities," said Citibank CEO India and area head Bangladesh, Nepal, and Sri Lanka Sanjay Nayar.

He said that the subsidiary route would help the bank expand more rapidly into these tier 2 and tier 3 cities. Foreign banks today continue to be hampered by legacy issue of restricted branch presence in the country, he added. Nayar was speaking at the three-day CoreNet Global India Summit.

Private sector banks are taking away market share from public sector banks as they expand their presence to smaller cities. Citibank today runs the risk of losing market share as it is not able to expand its branch network in keeping with the growing business opportunities in smaller cities, Nayar said. Citibank will increase its branch network from 26 to 31 by June this year, spread across 21 cities.

"If we are to have six to seven per cent market share, we need a large distribution network of 125-200 branches across 75 cities, he told Business Standard. When banks are dealing with small-and-medium enterprises (SMEs) it is not possible to operate remotely anymore, he added.

In addition to SME business, consumer debit opens up huge potential for banks in India. Consumer debt constitutes three per cent of gross domestic product against 26 per cent in Korea and 38 per cent in developed nations like the United States, said Nayar.

He was speaking to a forum of global executives who are responsible for developing and managing billions of dollars in real estate assets for corporations across the globe.

The government recently notified that foreign banks will now be allowed to set up subsidiaries in the country and these would be asked to operate on similar lines as new generation private sector banks. Citibank is awaiting the final regulations before it finalises its plans to adopt a subsidiary structure.