Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the debt instruments of Citibank N. A.’s (Citibank’s) India operations (Citibank India). CRISIL Ratings’ ratings continue to be based on the counterparty credit ratings of ‘A+/Stable/A-1’ by S&P Global Ratings [S&P Global]) on Citibank. Citibank is a subsidiary of Citigroup Inc (Citigroup), which has an outstanding counterparty foreign currency rating of ‘BBB+/Stable/A-2’ from S&P.

Analytical Approach

CRISIL Ratings’ ratings on Citibank India continues to be centrally based on S&P Global Ratings' counterparty credit rating of ' A+/Stable/A-1’ on Citibank N.A.

Key Rating Drivers & Detailed Description

Strengths:

Expectation of strong support from Citibank

The rating on Citibank India continue to be based on the counterparty credit rating of A+/Stable/A-1’ by S&P Global on Citibank. Citibank India is likely to continue to benefit from the funding, strategic, and management support from its head office.

 

Well-diversified financial services provider; amongst the largest foreign banks in India

Citibank India is a diversified financial services player with a widespread presence across corporate, SME and retail segments. The bank and its subsidiaries have successfully leveraged the Citibank brand and offer a wide range of products and services to its clients in the areas of financing and fee-based activities, including wholesale banking, investment banking, retail banking, and capital market offerings. Citibank India is one of the largest foreign banks operating in India, with reported asset size of Rs 216,890 crore as on March 31, 2021. The bank’s lending portfolio is well-diversified, with a balance between retail and corporate advances.

 

On April 15, 2021, Citigroup Inc (Citigroup), as part of its strategic review, announced strategic actions in Global Consumer Banking (GCB) business vertical, wherein, they will direct their investments and resources to the businesses where it has greater scale and potential, i.e. Institutional Clients Group (ICG) business vertical. Citigroup will focus its GCB presence in Asia and EMEA on four wealth centers — Singapore, Hong Kong, the UAE and London. As a result, Citigroup intends to pursue exits from its consumer franchises in thirteen markets across the two regions. The affected businesses include the consumer franchises in Australia, Bahrain, China, India, Indonesia, Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam. Citigroup’s ICG will continue to serve clients in these markets, which remain important to their global network.

 

This announcement also impacts the consumer banking business of India branch of Citibank N.A. (Citibank India), which primarily comprises of personal loans, loans against mortgage, credit card business and other products. Based on Annual Report and Basel III disclosures, the consumer banking business stood at around Rs 23,154 crore, which constitutes about one-third of the total advances as on March 31, 2021. On the liability side, the bank’s average retail and small business deposits for the quarter ending March 31, 2021, stood at around Rs 45,537 crore out of total deposits as per Liquidity Coverage Ratio disclosures.

 

CRISIL Ratings believes that the likely course of action is a slump sale of this business unit comprising of both asset book and deposit liabilities, subject to regulations and approvals. While the exit will reduce the size and scale of India branch balance sheet, the ICG business will continue to be run through the current branch setup only. Consequently, we believe that Citibank India will continue benefit from the funding, strategic and management support from its head office. Any change in the strategic importance of India market will be a rating sensitivity factor.

 

Comfortable capitalisation

Citibank India has comfortable capitalisation, with Tier I and overall capital adequacy ratio (under Basel III) of 14.45% and 16.22%, and Net Worth of Rs 28,273 crore as on March 31, 2021 (14.06%, 15.90% and Rs 26,534 crore as on March 31, 2020). The bank’s capitalisation is supported by the expectation of continued support from Citibank. Capitalisation is also supported by healthy networth coverage for net non-performing assets of around 62.9 times as on March 31, 2021.

 

Healthy resources profile, benefitting earnings profile

The bank has healthy resource profile. Deposits grew at 5.4% YoY to reach Rs 166,431 crore as on March 31, 2021. It has a high level of CASA deposits which enables the bank to maintain lower than industry average deposit costs. CASA deposits constituted 60% of the deposits as on March 31, 2021 and was the highest in the industry. The bank’s cost of borrowings for fiscal 2021 was low at 2.0% compared with 2.8% a year earlier.

 

Citibank has a healthy earnings profile, marked by its comfortable interest spreads, and higher than industry other income. The bank’s RoA stood at 1.9% in fiscal 2021 as compared to 2.4% in fiscal 2020. Net Interest Margin (NIM; net interest Income/Average Assets) declined but remain healthy at around 4.1% in fiscal 2021 as compared to 4.2% in fiscal 2020. However operating expenses (as a percentage of total assets) continued to remain elevated at 2.0% in fiscal 2021 (2.1% in fiscal 2020). The bank’s provision coverage for NPAs stood at 54.7% as on March 31, 2021. CRISIL believes that Citibank India’s core profitability will remain strong, supported by comfortable interest spreads and higher-than-industry average core fee income.

 

CRISIL Ratings believes that the recent announcement on the exit from consumer banking business will result in a decline in the CASA ratio with the reduction in retail savings deposits. Nevertheless, as the cost of borrowing for the residual current and term deposits – primarily from corporate clients - is relatively lower, it is expected to have a positive impact on the profitability. As per annual report disclosures for fiscal 2021, the segment profitability from corporate banking, treasury constituted nearly 92.5% of overall segment profits (including retail banking). Hence, the exit from consumer banking business is not likely to have a material impact on profitability ratios.

 

Weakness:

Modest scale of operations

Citibank India's scale of operations remains modest in relation to the overall banking system assets. The bank's Indian operations have a balanced mix of corporate banking (~70%) and retail banking businesses (~30%). On the corporate banking front, the Bank focuses only on prime top rated borrowers. On the retail front, bank has presence in the credit card segment. In addition to credit cards, bank primarily offers mortgage finance and personal loans. The bank will exit from its retail business in the medium term as per the announcement at the group level. This is expected to have an impact on the overall market share of the bank in the near term. On an overall level, as on March 31, 2021, Citibank India accounted for a small share of around 0.60% of advances in the banking system

Liquidity: Superior

Citibank India has a comfortable liquidity profile. It maintains positive cumulative mismatches in upto one year bucket. It also maintains very high excess investments in government securities in line with the global parent's requirements which can be utilised during short term stress. The bank’s average liquidity coverage ratio (LCR) for the quarter ending March 31, 2021 stood at 168.56% and it has excess SLR of around 30%.

Outlook: Stable

CRISIL Ratings’ ratings on the debt instruments of Citibank India are based on S&P’s rating on Citibank N.A. The outlook may be revised to ‘Negative’ in case of deterioration in Citibank’s credit risk profile.

Rating Sensitivity Factors

* Downward revision in the S&P Global rating of Citibank N.A. by more than two notches

* If there is any change in the expectation of support from Citibank N.A.

About the Bank

Citibank is the banking subsidiary of Citigroup, a leading financial conglomerate and a highly diversified bank with leading positions in many financial product lines. Citigroup has a strong franchise in its core businesses such as global wholesale/investment bank, consumer-banking business, and transaction-services operations. The group had consolidated assets of around USD 2362 billion as on September 30, 2021, as against USD 2234 billion as on September 30, 2020.

 

Citibank started operations in India in 1902 with a branch in Kolkata. Until 1997, its operations were restricted to the four metros. Since then, it has expanded to the next tier of cities and currently has 35 branches. Citibank India is one of the most prominent foreign banks in India, with significant presence in the retail and corporate business segments. It leverages its wide geographical presence and international connections in these segments. On the retail front, Citibank India was one of the first players to introduce credit cards in the country, and has a significant presence in the segment.

 

For fiscal 2021, Citibank India reported a profit after tax (PAT) of Rs 4093 crore on a total income (net of interest expense) of Rs 12,840 crore, against a PAT of Rs 4918 crore on a total income (net of interest expense) of Rs 13,316 crore for the previous year.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Complexity level	Issue size (Rs.Crore)	Rating Assigned
NA	Subordinated Bonds*	NA	NA	NA	Simple	320	CRISIL AAA/Stable
NA	Certificate of Deposits	NA	NA	7-365 Days	Simple	5000	CRISIL A1+

*Yet to be issued