India’s appeal as alternative to China rises: Citi’s Khullar

What would be Citi’s new strategy, after the divestment of India consumer banking business to Axis Bank?

One of the significant strategy changes over the past two years, and that was really when Jane Fraser took over as the CEO— it was a global strategy refresh, as we call it—was to try and focus on our institutional businesses. And because we believe that’s where Citi has the best, long-term sustainable advantage because of a global network. And an incidental part of that was exiting our consumer banking businesses in 14 countries globally. So, that was not an India-specific decision. And as a part of that, we made the sale to Axis Bank, which I think was handled well, from the perspective of minimal disruption to our clients, employees—96% of them accepted offers. Overall, I feel pretty good about what I think the teams did. As I said, this was part of the whole strategy, and as a part of that, the idea was to redeploy our capital to our institutional businesses.

What is your focus area in the institutional business?

The strategy is obviously that we want to bring foreign clients to India, and we want to take Indian clients overseas. So, you want to help them grow as they go global and also with their needs in India. That’s where the whole breadth of the platform comes in. We can do everything from equity raising to debt to M&A advisory to cash management, trade financing, commodity hedging, the whole gamut. The second category is the multinational segment that is getting a lot of attention right now because India is very credible and a real beneficiary of de-risking, which is happening around China. The third category is commercial banking which is the middle market segment. We are seeing opportunities in all three. The GCCs have been growing at 15-16%. Citi will be having 30,000 people by the end of this year. We were 14,000-15,000 three years ago, and this is happening in every sector, and it’s no longer my back office. This is now technology, analytics, front-end, global companies looking at putting the product design and best-in-class engineers in India. So, that is going to play out.

How important is Citi’s India business in the global scheme of things?

India is a real star. In the first investor conference, which Jane Fraser did, she used India as a showcase for our global strategy. Her narrative was that here is a country where we’ve been for 120 years, and our strategy globally will be on this template. India is, in that sense, one of our most critical focus areas. Everybody is very excited about the India growth opportunities and the fact that we are already deeply embedded right here. It’s not like we are coming in as an outsider trying to build a business.

Which are the equity capital market deals you have done in the past year? There is a feeling that Citi is losing market share in investment banking.

That is just the perception. We have done one and a half billion volume in the last 12 months. Last year and this year, the general environment for capital market transactions globally has been soft. The rates were up due to geopolitics, mismatch of valuation, etc. And I think globally, while I think the investment grade DCM (debt capital market) is back, there is some activity on the ECM (equity capital market) starting again. But overall, it’s still slow and sluggish. India, on the other side, saw lower than what they were in the record 2021, but at least what you have seen on the equity capital market side has been a pickup in activity. So, it started with smaller IPOs. We have got three IPOs in the pipeline. We’re just launching Concord, which is in the API pharma space, which I think is close to $200 million, which will be the third largest IPO after Delhivery and then Mankind Pharma. And if you look at the external flows for the first 2-3 months, you still had an outflow of foreign direct investment (FDI) flows from equity markets. Now we’ve had a net of $15-16 billion.

The US Federal Reserve has kept the door open for more hikes. Do you see the risk of a flight of capital from India?

I do not think on a secular long-term basis because when people take decisions, they do not take decisions based on today, thinking that the rate differential is lower than it was. Equity capital, anyway, does not take a long-term view. There is always some capital which is just doing arbitrage, and those flows will get affected. But I think if you take a medium to long-term view, India is the story. Long-term, medium-term and even now and also on the DCM (debt capital market) side where there has not been too much activity except for the banks, it is not because capital is not available but because Indian issuers today feel it is cheaper for them to get rupee funding or at best, floating rate ECB (external commercial borrowing) loans rather than locking into a fixed rate. Short-term arbitrage is not a play at all; people take a medium-term and a long-term view, and there, India is a very compelling story.

Are you seeing interest among your clients in government schemes like the production-linked incentive (PLI)?

We are the heart and centre of that process. Now, it takes time, and this is not something which happens suddenly. One cannot just ask why there is not so much more FDI (foreign direct investment) already, and the FDI numbers actually this year may be slightly smaller because there is the effect of the big Reliance transactions which came in FDI. Clients are saying that China is a very important market, and we are not going to exit it, but it is about de-risking as well. I am not going to create dependence on manufacturing in China for the world.

India is not the only option, but it’s a very credible option. China is four and half times the size of our economy, so we should be mindful of that, but it is slowing down, and it is ageing, and globally and the geopolitical risks are obviously all real.

Updated: 13 Aug 2023, 11:35 PM IST