Don’t use credit cards like this!

Citibank’s decision to quit consumer banking in India and 12 other countries reminded me of the loans I had taken from the bank way back in 1990 to buy two pieces of ‘conspicuous consumption,’ soon after marriage: a boxy television and a video cassette recorder (VCR). The only other mod cons I had then were a direct-cool Kelvinator refrigerator and a mixer-grinder. Citibank charged usurious rates, close to 40 percent a year, I think. When I prematurely repaid the loan, it charged me interest for the subsequent month as well saying it would take that long for its processing centre in another city to encash the cheque. The bank seemed Shylockian to me, but as a pioneer of consumer banking it at least made retail loans available.

How the bank got the license for retail lending is interesting. In 1988, Citicorp had announced ambitious plans to expand its global consumer business. It wanted to be the “McDonald’s of consumer banking worldwide,’ says Rajiv Desai in his book, ‘Indian Business Culture.’ Desai had returned from the US to set up Indian Public Affairs Network (IPAN) in 1987. He was trained as a mechanical engineer and had a degree in journalism but practised public advocacy. Citibank became his client in 1988.

It was not going to be easy for a foreign bank to obtain regulatory approval for consumer banking. Though Citibank had begun operations in India from Kolkata in 1902, it did not have a large public profile as it was into investment banking and corporate lending, says Desai. Banking was viewed through the lens of development. In 1980, six banks had been nationalised in addition to the 14 which the government had taken over in 1969. Janardhan Poojary who became minster of state for finance in 1982 and continued in that post till 1987 organised loan melas for the poor. Banks had targets for lending to the ‘priority sector,’ a term that got formalised in 1972 on the basis of a report of a committee set up by the RBI. In 1985, commercial banks were told to lend 40 percent of their advances to agriculture and small industries. In such a context, ‘profiteering’ foreign banks could be allowed to exist but not to thrive.

Citibank got an image makeover by raising dollar deposits from non-resident Indians (NRIs). Protectionist policies had made Indian exports uncompetitive and the country was always short of “precious” foreign exchange to pay for essential imports. The Foreign Currency Non-Resident (FCNR-a) scheme had been floated in 1975 to attract dollar deposits from NRIs. It was a costly scheme; not only was the interest rate high, the RBI – and later the government – bore the currency risk. It was replaced in 1994 with FCNR-B scheme, where dollar deposits were repaid in rupees and depositors took the currency risk.

Citibank had set up an Indian Investments division in 1987. With creative marketing campaigns and operational skill, Desai says, the bank had mobilized close to a billion dollars in NRI deposits. This endeared it to the government.

Then, in July 1989, the United State Trade Representative (USTR), Carla Hills, invoked Super 301 which allowed the US to impose trade sanctions on India for unfair trade practices. This aroused anti-US feelings in India. Citibank’s plans of setting up a network of ATMs, selling credit cards, giving loans against home mortgages and financing cars and appliances seemed to go up in smoke. But using a little known provision Citibank filed a representation to the USTR as a US company doing business in India. It submitted that it was operating in India for over 85 years and while US businesses faced several problems, the Indian government had shown a keenness to address them. According to Desai, it said that, “On balance we have found India a fair and rewarding place in which to do business.”

The bank made this submission known to the Indian newspapers, which carried it as front page news. It also issued advertisements affirming its commitment to India. With its ‘nationalistic’ credentials established, Citibank was given approval for consumer banking in 1990. This coincided with its acquisition in May that year of the Diners Club credit card franchise.

Ujwal Thakar writes in a Facebook post that Citibank was a model for consumer banking, and a pool of talent. Its head, Jaithirth ‘Jerry’ Rao (who later founded the software company Mphasis), had make it a top revenue earner for the bank. Thakar headed retail banking in Times Bank till 1999 after which he moved to a similar position in BNP Paribas. But after two years setting up a technology-led retail banking business with 400 recruits, Thakar was chagrined to find the French banking company shut it down. Bank of America, Deutsche Bank, Barclays and ABN Amro have also gone down that path and quit consumer banking in India. HSBC and Standard Chartered continue to hold on to them but who know for how long?

Citibank consumer banking prowess lives on in the banks that its former executives headed. Samit Ghosh set up HDFC Bank’s retail franchise and Aditya Puri retired last October after being CEO of HDFC Bank for 26 years. Both were former Citibankers. HDFC Bank is India’s No 1 bank in market capitalisation and profits, though State Bank of India lends double the advances.

In 2019-20, HDFC Bank’s retail advances were Rs 440,401 cr or 51 percent of its total advances. Citibank’s total advances were Rs 66,508 cr.

As of February 2021, Citibank had 2.6 million credit cards and their transactions for the month were worth Rs 3,077 cr. HDFC Bank had 15 million credit cards and their transacted value that month was Rs 17,812 cr. Citibank’s 1.65 million debit cards mediated transactions worth Rs 1,040 cr in February. HDFC Bank’s 36.45 million debit cards were used for transactions valued at Rs 28,558 cr. While Citibank’s retail business was profitable, it was not profitable enough for Citicorp and it was time to call it quits.