MUMBAI: Are foreign banks finding it unremunerative to run their retail banking business in India, struggling to compete with domestic players on their own turf?
The recent developments point to that, as global banking giants like Citibank and Standard Chartered have either exited or significantly scaled back their retail presence in India.
With Citibank selling its retail business to Axis Bank in 2022 and Kotak Mahindra Bank now acquiring Standard Chartered’s Rs4,100 crore personal loan book, the trend suggests to a broader retreat by foreign banks from India’s highly competitive retail banking market.
Citibank made a similar scaling down about two years ago, selling its entire retail business in India to Axis Bank for Rs11,603 crore.
Eyeing specialised segments
“Foreign banks seem to be scaling back their retail operations in India to focus on specialised segments such as wealth management, affluent customers, and corporate banking,” said a banking analyst while talking to businessbenchmark.news from Mumbai.
Aditya Mandloi, Head of Wealth & Retail Banking, Standard Chartered Bank, India & South Asia said the bank’s decision to divest the personal loan book is in line with the bank’s focus to accelerate growth in the wealth, affluent and SME segments.
India remains a key market for Standard Chartered, with Wealth & Retail Banking (WRB) and Corporate & Investment Banking (CIB) as the cornerstones.
“We will continue to invest and grow in these areas, while focusing on delivering high-quality services to affluent customers,” Mandloi said.
Retail head of a local bank said foreign banks may be increasingly finding it challenging to compete with domestic players in the mass retail space.
“Instead, they are repositioning their businesses towards high net-worth individuals, SMEs, and investment banking areas where they have traditionally excelled,” he added.
Growing competition
It’s a fact that the domestic players, especially the large private sector banks such as HDFC Bank, ICICI Bank, and Kotak Mahindra Bank, have aggressively expanded in the retail lending market.
HDFC Bank has substantially scaled up its operations after the merger between HDFC Ltd and the bank last year.
“These banks benefit from extensive branch networks, deep local knowledge, and technology-driven banking solutions that resonate well with Indian consumers,” the analyst from Mumbai further said.
Regulatory hurdles
Foreign banks often face stricter regulatory requirements and compliance costs in India, and there are banking experts who believe these regulatory requirements could get tougher going forward.
The Reserve Bank of India (RBI) mandates stringent local operational structures, which can weigh down profitability in mass retail banking.
Niche operations
Both Citibank and Standard Chartered have identified wealth management as a high-growth area.
With rising affluence in India, global banks are focusing on offering personalised services to high net-worth individuals, which yield higher margins compared with mass retail banking. Moreover, following up bad loans in retail banking is certainly cumbersome for foreign banks, which operate on limited branch and human resources
Digital disruption
The fast growing digitalisation in India’s financial landscape has certainly given domestic banks an edge over their foreign counterparts.
The large banking players like Kotak Mahindra Bank have leveraged digital banking, fintech collaborations, and customer-centric innovations to capture market share, further squeezing foreign competitors.
