RBI’s Mastercard ban could affect Citibank India retailing

The recent Reserve Bank of India (RBI) regulatory ban on Mastercard has raised questions about the likely valuations of Citibank India’s retail banking business, which is for sale. Citibank has an exclusive link with the payment company for issuing debit cards and will have to stop issuing them from July 22, according to the RBI circular.

While the ban will not affect existing customers and businesses, it will impact the addition of new customers by the time the actual sale is made and could weigh on the price potential buyers are likely to pay.

“Citi has a great franchise on the retail side so there may be a lot of interested suitors,” said a banking executive. “But with this ban, the bank cannot add new passive customers. While this does not affect the business already built, it can be value-destroying if this situation continues, as wealth management clients are an important part of the business for sale and are closely linked to the portfolio of bank liabilities.

Bankers said that while the RBI’s action does not impact existing customers, the impact could be felt if the ban lasts for a long time and the transaction is delayed.

Citibank declined to comment.

RBI data shows that Citibank had 1.6 million debit cards in circulation in India as of May 2021, less than 1% of the 902 million debit cards in circulation in the banking system, despite having the largest number of cards in circulation among foreign banks in India.

“The Citi business is for sale. People are now bidding on this existing business, ”said another banking executive. “Citi may need to look to migrate to another card company like Visa in the short term, because if this Mastercard issue is not resolved quickly, it would weigh on this transaction and could lead to an exodus of customers impacting the value.”

India is among 13 markets where Citibank has decided to pull out of retail operations as its first female CEO, Jane Fraser, decided to retain her capital and focus on higher yielding companies. Last week, it received a dozen non-binding offers from the private sector and foreign banks seeking to acquire its retail business in the first stage of the sale. These offers will now be evaluated to find firm offers. The process will likely take months and will also require RBI approval.

Citibank is estimated to have 2.9 million retail customers and 1.2 million bank accounts in India. It has 2.61 million credit cards. It operates 35 branches nationwide and held deposits of 1.6 million lakh rupees as of March 2020. In a report released in April, Macquarie valued Citibank’s Indian operations at between $ 1.91 billion and $ 2.15 billion. .

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