Citibank India: Expatriate Indian Programme

Mr. Jerry Rao, chief executive officer of Citibank India was to meet his senior colleagues at 11.00 AM. It was a warm day in April, 1992. The agenda of the meeting include the discussion on the strategic direction for the Citibank expatriate Indian Programme (CEIP). CEIP over the years had become a major activity for Citibank in India. Jerry Rao, had just finished reading two different plans submitted by its two Vice president. The two extracts mentioned earlier summed up the focus of each plan. There were two alternative direction for CEIP to trace would one lead to greater success than other? Or was there another path? These questions were being raised within six year of CEIP existence. Jerry Raos task was difficult. Both the plan had their merits. These were prepared by two talented Vice-President of Citibank. Both with the best interest of the bank at heart and both of them had strived to make success possible. Both could be right, in their own ways. TRAILER (A LOOK AT PHILOSOPHY) It is not out of context that Jerry Rao, the CEO of Citibank in India and head of the consumer service bank told his senior colleagues, In every country where we operate, we operate as a local bank. So were at home there, but also because of that very nature of ours, we are at home nowhere; which also gives us the international flavour totally. I cant think of any other institution which has this paradoxical combination of international and localism so heartily brought out and so successfully emphasised. That is what makes Citibanking different from just banking. The quote was not lost on Subank Warkar, the head of CEIP. He was recovering from six months of gruelling world travel, pushing two messages India was a great place to invest in and Citibank was the ideal bank to invest through. Within 15 days of the Indian Governments new budget for 1992, CEIP executives had met with the Prime Minister, finance Minister, commerce minister and a whole cross section of bureaucrats, technocrats, etc; video-taped their views and exposed it to non-resident Indian (NRI) audiences from Sydney across to Los Angeles. The message was clear that India was a tiger uncaging, ready to join the world. Three months later came the next move. Citibank was celebrating its 90th anniversary in Asia. Its plans, aims, aspirations presented by its seniors managers in Asia-pacific were again

packaged as part of a video presentation. And once again the executives hit the trail, exceeding a billion US dollars. They were second only to the State Bank of India who had embarked on the FCNR* programme somewhere in 1970, as they claim proudly. The quote was not lost on Ravi Sood the head of Citibank local markets (CLM) who had performed in an equally complicated area, but for resident Indians. His aggressive Citimotor an automobile purchase programme, was financing every second Maruti car on the Indian roads. The executive missing from the troika was Arun Deb, the head of the credit card division of Citibank. He was currently chasing the 220, 000 CIF number (i.e. cards in force). He was away in Singapore negotiating a deal with Visa International to launch an international foreign currency card through India. this was a result of the recent liberalisation programme of the government. Citibank wanted to be, as usual, the first in the fray. Privately, it was heard, that he used to muse, We seem to follow the ready, fire and aim school of business. To underscore a point, not bad philosophy at all for a part** of a bank, that set up shop in 1985. But its roots go back 90 years. Bank Building An Enviable Record Citibank, the global bank from the US completed 90 years in India in 1992. It had all along accepted Indias placed in the regional as well as the global economy. This recognition could be attested from the fact that the banks first branch in India in Calcutta was opened in 1902, simultaneously with the opening of branches in London, Tokyo, Shanghai and Singapore. While there were 1200 Citibank branches scattered across Asia, Citibank India had six. Hence 90 years down the road, the bank was permitted only this marginal increase in brick and mortar. The bank had encashed its expectations and over the past 90 years had lived up to two of its characteristics wherever it operated. Firstly, it was occupying the premium position in the banking industry of the country and was making Citibank feel proud in working for the bank and its customers feel prestigious to bank with Citibank. Secondly, it was getting well-

integrated into the ethos and economic of the country where it operated, in both cases Citibank appear to be quite successful in India. Citibank had been misappropriate involvement in several ways in banking activities compare with the size of the bank, said Mr. Rao, the involvement was attested by the fact that the bank only with the six branches, was today the second largest mobilise of NRI deposit among all the banks in India. Second, in foreign exchange business and fund management, the biggest manager of fiduciary portfolio funds and a leading player in the money market. Also, at the beginning anniversary in 1992, Citibank held about 1% of the Indian banking system deposit, it served many multinational corporations in India, it had a 10% share of the foreign exchange market in the country and 15% share of the security trading. The bank moved 2% of India total cash flow every day. It was India 3rd largest software exporter. The head of the corporate bank, perceived as a foresighted thinker, was A S Thiyagarajan. He was recently quoted in the national phase less and less money will be coming into banking system and more money will be going into the market. In the coming days the theme of everyone is going to the market. Therefore, the customer should be dependent less on the banking and financial institution and more on going to the market, and these is where Citibank will be able to help them. Citibank in 1991 emerged as the foreign bank with the largest deposit and earning the highest profit. The deposit, particularly in the first 5 years, had grown phenomenally from Rs 490 crore in the 1986 to Rs 2642 crore by March 1992. Consumer Banking The consumer bank, headed by Jerry Rao came into being only around 1985. It had a specific target the upper segment and the fast growing upwardly mobile middle class. This was because Rao, who was rated by his peers as one of those rare bankers with great marketing acumen, saw the opportunity before anyone else could. It was known to all banks that it was possible to give loans to customers against their fixed deposit. However, Citibank was the first to convert this into a product offering called unfixed deposit. A name which soon assumed generic status.

Citibank

Corporate Bank Head A S Thiyagarajan

Retail Consumer Bank (Head Jerry Rao)

Corporate Expatriate Indian Programme

Citibank Local Market (CLM)

Credit Card Division

Exhibit-1 Organisation Structure of Citibank India (1992) And when this product was copied by another bank, Citibank differentiates its fixed deposit again by maintaining customer deposit in units of Rs 1000 called a multi-deposit. This allowed customers greater liquidity which was made possible through Citibanks technological edge. He ensured that the automatic teller machines did not merely mean automatic cash disbursal but they were perceives as 24 hour banking and so on. This was also one of the innovative solutions to expand banks rich, given the regulatory constraints on expanding the banks branch network. In fact, the great opportunity he saw, t be exploited was: a bank that would go to customers and not vice versa, i.e. you could make loans since you did not have enough branches for deposits. He foresaw that since the late 70s the habits of the Indian consumer were changing; buy now, pay later was overtaking save now, buy later Statistically, it was reckoned that there were 20 million households in the middle market, and 1 million in the upscale segment. This segment was ripe for marketing a loan. A loan which was given gently and gracefully; the customer did not have to beg for it! India was also becoming one of the biggest markets for two-wheelers, refrigerators and TVs, with annual growth rates of around 25% (Exhibit 8.2). And of course cars; the Maruti

(Suzuki) was in. The customer and product were available; all that separated them was an easy loan. Customers snapped up the offerings. The portfolio of products kept on increasing as the availability of opportunities presented themselves. A roll-call of products show how each segment was tapped: Citi Motor:

Loans for the purchase of cars (Marutis, Premiers and Ambassadors). The loans were also offered for purchases of second hand cars. This product was managed with the help of an extensive dealer network. These dealers were responsible for receiving and processing applications according to the credit guidelines set up by the bank. (No. of Units) Early 80s TV Two wheelers Cars Refrigerators VCRs Washing Machine A lakh is equal to one hundred thousand. Exhibit -2.Consumer Durables Market in India Wheels: This product was similar to the above, except that it offered loans for the purchase of two-wheelers. Easy Buys: This was a loan programme for the purchase of consumer durables such as refrigerators, TV, Scooter, etc. administered through the payrolls of the companies around the country, whose employees availed these loans. Credit Worthy: This Scheme offered loans for professionals and self employed people. 1.5 lakh 1.5 lakh 40000 3.2 lakh Nil Nil 1989 60 lakh 20 lakh 160000 96.3 lakh 16 lakh 10.2 lakh

Citihome: Citihome scheme offered customers loan between 2.5 and 15 lakh for the purchase of both under construction and ready properties in six metro areas. Mediquip: These loans were offered for the purchase of medical equipment by doctors and clinics. This was part one of jerry raos game plan of what he called marketing money like soaps and toothpaste, the second, was CEIP, the third was setting up of the credit card business.

The Path Breaker The Bank had aimed to be a path breaker in its operations wherever it operated and india was no exception. It pioneered in mid 1960s, among the foreign banks recruitment of Indians to managerial positions. It went to management institutes to recruits its future executives. These executives, over a period of tome had been tapped by the parent bank to man its global operations. Many Indians were now heading bank operation in other countries. Citibank india had now become the biggest exporter of high caliber manpower which was used in other banks. The banks software subsidiary was today the biggest exporter of bank oriented computer software. RIDING IN (CITIBANK EXPATIATE INDIAN PROGRAMME) It was Citibanks conscious decision to reach for NRIs, knowing the countrys need to mobilize NRI (NON RESIDANT IN INDIAN) DEPOSITS. It was the first among all Indian banks to systematically cater to NRIs and enable them to intimately play their due role in the economic development of their country. Citibank had 14 NRI centers across the globe where there were cluster of expatriate Indian and six branches in India. It had, so to say, 20 strong NRI branch network and the result had not been unflattering. INITIAL THINKING G S (Rana) Talwar, the head of Citibanks consumer operation across the Asia-pacific zone (headquartered in Singapore) was musing at a meeting with jerry roy, about the wealth of cverseas Indians and that all it required was a tap. Rao recognized the powerful potential of this thought. It also fitted neatly with the limitation of Citibanks own branch network in India which due to government restriction was at 6, compared to 56 of ANZ Grindlay, 24 of Started Chartered

and 20 of Hongkong Bank; (Exhibit 8.3) and which consequently hampered Citys ability to mobilize domestic deposits. BANK Grindlays Citibank Started Chartered Bank of America Hongkong Bank American Express No of Branches 56 6 24 4 20 3

Exhibit-3 Foreign Bank Branches in India (Major Multinational Bank) Access to the money market would be yet an unprofitable route, i.e to borrow money from the market to lend it at a higher rate. While Feasible, good banking practice tries to match the loan given and deposits taken-mismatches are unpredictable and cause problems, mainly financial. The RBIs (Reserve Bank of India) FCNR-(Foreign currency non-resident) scheme had been available to banks from the early 1970s and by 1986, there were 40 banks already offering this product to NRIs. A careful study of their methods revealed: Banks Nationalized Banks Positioning Statement Nationalized bank providing international banking services Foreign Banks Personal bankers with higher customer responsiveness

This bank essentially waited for the customer to bring in the deposits, whereas CEIP went out to the customer and got him to invest in India. Here was an opportunity waiting to happen!

The arithmetic looked good. 12 million NRIs across the world with an estimated wealth of US$ 300 billion and an annual saving potential of US$ 45 billion. Aiming for a market share of 2.5% would deliver more than US $ 1 billion. Many carefully planned research studies were conducted to find out if NRIs were the same the world over and Rao drew what he called an affinity index. That was to say that the amount expatriate Indian was willing to invest in the country was inversely proportional to the time when they left it. Hence targeting at the recently gone-abroad Indian charted accounted and tapping this remittance was easier than the Indian Whose father had immigrated twenty years ago. Strategically, it was decided to target the top 10% of the customer base rather than everyone; though whoever took the offer would be accepted. The bank wanted a nice Friendly image to start with. The product did not look too hot however. Ever bank had the opportunity to market the same potato. Every bank could offer the NRIs an assured rate between 0.5-1.00% above LIBOR* on deposits placed in Indian, as decided by the Reserve Bank of India. These were rate superior to what the NRI could get in his country of residence. This was the sweetener, and of course, the government bore the FX* risk. Here was a product whose form and price was fixed; almost like Henry Ford said

High

GULF SAUDI

UK Medium E Afrika USA

SE Asia

S Africa Low Caribbean Fiji Far East

Canada

USA Australia

Australia

New Zealend

Pre-Independence

Late 40s to mid-70s

Mid 70s to present

Historical of Migration Exhibit 8.4 NRI Affinity Grid The customer can choose any color long as it is black. Like Ford, the idea was to mass-sell. But , how? Therefore the only two variables in marketing armory of CEIP were distribution and promotion. And with these two, they said, We will go to town! ITS WAR (MARKETING STRATEGY) Strategy Citibank had a defined mission: To be the best bank offering superior service for the expatriate Indian target market and to be the second largest in the market place within 5 years. They had a defined target group: The top 10% of the NRI households in a particular territory.

Also, conceptually as Rao saw it, there were three gaint pieces in the jigsaw puzzle. Gaps as he called them. They were the Distance Gap; the Information Gap; and the Historicity Gap. In distribution terms, this was an opportunity to turn the tables on competition. Citicorp, the parent body was Americas biggest bank whose chairman, John Reed had set into motion the worlds largest consumer bank. It had 3500 branches across the globe. This was the level to move the world if you stood in India. A time bound pound plan place was put into effect to position Indian Officers and staff at various location to cater to NRIs. Hence in 70 locations where they was a sizable portion of non-resident Indians, the distance between the bank had arrived on the customers shore.

Business Head

Region Head Asia

Region Head (EMEA)

Region Head America

Singapore Hong kong Jakarta Sydney Manila

Dubai Sharjah Al-Ain Abu-Dhabi Muscat Bahrain London

New York Houston Chicago Los-Angeles Toronto

Exhibit-5 Overseas network of Citibank Expatriate Indian Programme (CEIP)

This person from Citibank India was called person account manager. The NRI could talk to them to face to face and get answers to this question. And of course be sold across the table. Here at least was a bank that could speak the same language as the NRI, personally. The next gap to be filled was the information gap. Bank marketing the NRI programme prior to Citibank were blissfully unaware of the communication need of the customer. They communicated what they wanted to say and not what the customer wanted to here. More than that, they merely kept the product as the product was envisaged- Which was a bank deposit, ad not what the customer wanted to perceived, i.e. high returns on their money. The last gap was the historicity gap. The one created by the affinity index! Since the customer was distant from his country, the idea was to make him feel comfortable and emotionally reattached to the country of his birth. This person should feel good about India and only than would he invest Product The government offered higher rate of interest in 5 currencies US Dollars, Pound Sterling, Deutsche Mark, Yen and then Rupee. Exhibit 8.6 to exhibit 8.9 the differential between the interest rate of offered under the FCNR scheme and interest LIBOR rates. CEIP added a few more currencies, e.g. Swiss Franc, New Zealand Dollar, ECU, etc. by simply accepting the money in Singapore and sapping them in to any of the currencies under the RBIs FCNR programme, viz, dollar, pound Sterling, Japanese Yen, Deutsche Mark. This automatically doubled the availability of flow double the number of customer. Close scrutiny of the fixed deposit reveled that if the depositor wanted the small portion of the deposit for some urgent need, the entire deposit had to be broke. The needed amount retrieved and the balance re-booked as a frees deposit, made the procedure complicated and bureaucratic, entailing a loss. CEIP merely kept each deposit in unit of $1000 (or similar for other currencies), i.e. each deposit was actually many deposit of $1000, so that the customer merely withdrew in unit of 1000 and the rest of the fixed deposit continued to earn interest.

Research with customer, especially in the Middle East reveled that life insurance was not rapidly available. Hence CEIP tied up with the biggest insurance outfit in the Middle East of offer insurance-linked deposit Eventually, the same brown potato available to all banks became a series of culinary delightes and branded to wit! Citistar: Citistar was a fixed deposite scheme with high liquidity. This deposit was kept in units of USD 1000 , pound sterling 100, DM 1000 and Japanese Yen 100,000. Citisave: A savings account in India, to meet the depositors banking needs at home. This account was maintained in one of the branches in India. Multicurrency: Citibank offered an option to the depositor to invest in currencies like ECU, Swiss Franc, Canadian Dollars, Australian Dollars and new Zealand dollars. The bank then swapped these currencies in any one of the FCNR currencies and placed it under the FCNR scheme. On maturity the FCNR currency would be swapped back in the original currency. So the customer would get the proceeds back in his /her country of residence or choice. Promotion: These products were launched through the available mass media in the middle east like the khaleej times Dubais leading paper, through radio and TV, and through the ethnic media in the USA. Where these were not available, direct mail was used. In fact, over time, CEIP had built up the finest database if orisoect and customer NRIs across the world. Each personal account managers location which initially started as a table and chair operation had literature and posters available. Each customer got a statement of account every quarter and with it a magazine specially created for NIRs Citi-India. citi-india rarely carried any promotional material from Citibank expect the name, rather it aimed at giving cultural value. Customers, prospective and current were reached once a month for a variety of purposes by direct mail- to put in more deposits, to open a new account, to give their suggestions, to find out what they think about the personal account managerThe idea was, contact with the customers.

And finally, the personal account managers were motivated by a series of sales contests. Contests which matched the growing sales in hype if not always in cash! The contest came with appropriately romantic names such as The Great Achiever, Golden Gloves, Space Odyssey and Its War. Consumer promotion schemes were also introduced, where possible. For example, in one of their schemes CITI90, Citibank collected more than $50 million in the United States and $100 million worldwide. Under the offering, Citibank India gave $90 for any deposit of more than $25,000 in the FCNR account. It also made the depositor eligible for a sweepstake, with the first prize being cash deposit of $25,000. The scheme was the highest incentive given by any bank for an FCNR account. The scheme was profitable despite the apparent high cost. A $90 gift amounted to an additional interest of 36 basis points. After success! (Results) By 1990, the numbers looked as follows Bank SBI Citibank Bank of Baroda Canara Bank Central Bank of India Grind lays Others Market Share of NRI Deposits 20% 15% 12% 10% 7% 5% 31%

The sharp increase in NRI deposits in 1990, associated with the Gulf crisis sparked off another crisis in CEIP. The capacity to process was run, i.e. the back end could not keep up with the cash flowing in from the front end. This resulted in major customer complaints:

deposit receipts not issued, funds applied wrongly, mistakes in address and non answering of queries. All these signs of confusion led to a number of enraged customers. All this point of time, other foreign banks scenting blood moved into the fray. They could offer and clone whatever CE IP had and make a better offer-partly because they had a smaller number of customers. According to the insiders, far from affecting the aggressive spirit of CEIP, competitive offerings and service problems, in fact appeared to spur the business on. The entire back end operation was cleaned out, new processes put in place and within seven months the division had bounced back to top service levels.

Deposits per branch: Major Multinational Banks(1989-90)

350

300

250

200 Rs. In Crore

150

100

50

0 Grindlays Citi American Express Hongkong Standard Chartered Bank of America

Income per Branch: Major Multinational Banks(1989-90) 60

50
40 30
Rs. In Crore

20 10 0
Grindlays Citi American Express Hongkong Standard Chartered Bank of America

Deposits from Public: Major Multinational Banks(1989-90)

1400 1200 1000 800 600 400 200 0

Grindlays Citi American Express Hongkong Standard Chartered Bank of America

Fixed Savings Current

Advances Per Employee: Major Multinational Banks(1989-90)

200 180 160 140 120 100 80 60 40 20 0 Grindlays Citi American Express Hongkong Standard Chartered Bank of America Rs. In Lakh

The bank was aggressively pushing India and selling itself-the six months of customer problems had been digested and lessons learnt. As a post script, the year 1991, was a dreadful year for the Indian economy. More NRIs withdrew their money. At CEIP however, it was the opposite. The fruits of learning were felt to be sweet. SIGNS OF THE TIMES(Future Concerns) In six years the CEIP had more than 1 billion Dollars in deposits and more than 60000 customers. It offered a single product a fixed deposit. The new governments policies were making India a better and more attractive place to invest in. Liberalization had ushered in partial convertibility of the Rupee, with full conversion anticipated to follow in a year down the line. This freed up the mystique of the Dollar and as the countrys balance sheet firmed up, its need for expansive funding kept going down. This would have inevitably affected the FCNR programme. Interest rate decontrol had started; the government had already made signs that they will not bear FX risk, pointing out to full responsibility for such risk with the banks. In a recent announcement, the RBI allowed NRIs and returning Indians to import up to 5 kg of gold per passenger. Further, there were editorials and articles in the leading financial newspapers of the country on further liberalization of gold import through NRIs. One of the

suggestions was to issue gold bonds/gold certificates to be sold abroad to NRIs. It was estimated that the countrys annual demand of gold was around 240 tonnes, while the annual production was only around 2 tonnes. About 60 tonnes of consumption was met through recycled gold, leaving a demand-supply gap of about 180 tonnes. The total volume of gold was estimated at about Rs 7500 crore every year. A report in a leading financial daily stated, The World Bank has advised India to reduce on NRI programmes and rely more on alternative instruments with longer maturities and more predictable servicing profiles, like the bonds. The bank had hoped that such a shift away from NRI deposits should be part of the governments prudent debt management strategy. Indias total debt was at USD 72 billion, of which the NRI deposits were estimated at over USD 10 billion. The World Banks advice was partly attributed to its projection that the new NRI deposits would be negligible in the next two years rising by only USD 0.4 billion. It had pointed out that the contribution from the NRI foreign exchange deposits was to be modest. These deposits have become an important but costly, as well as a volatile source of external financing in the eighties. The Indian stock market had been kicked alive. From a somnolent 1500 points in Dec 1991, the BSE Index had reached 4000 plus in March 1992. More decontrol and greatest NRI interest in the stock market pointed to greater opportunities. There were also serious risks, such as high P/E ratios, share premia, exit policy, etc. Country Inflows: FCNR and NRE Scheme
3000 2500 2000 1500 1000 500 0 1985-86 86-87 87-88 88-89 89-90 90-91 Rs. In crore

Fiscal Year

The increasing liberalization of the economy also saw the government relaxing restrictions on the expansion of foreign banks. India is on the move, said Dr Manmohan Singh and he meant it. The dam of opportunity was literally in ferment and lashing at the walls of conservatism. What were the actual opportunities the times held? Were they real or imaginary? The question took Jerry Rao back to the beginning!

Summary of the Case study:

Background of the Case:Citibank started a new programme i.e. CEIP(Citibank expatriate Indian Programme). The time has come for CEIP to redefine itself. It has to become strong in strategically new direction of growth. For this the CEO of the Citibank discuss on the strategic direction for CEIP with their vice president. The first branch in India in Calcutta was opened in 1902. After that opening of branches in London, Tokyo, Shanghai and Singapore. In India, Citibank has only six branches. Up to 90 years, they lived with the two characteristics i.e. 1. It was occupying the premium position in the banking industry where its customers feel prestigious to bank with Citibank. 2. It was getting well integrated into the ethos and economy of the country where it operated. In both the case, Citibank appeared to be quite successful in India. This involvement was attested by the fact that the bank with only six branches, was today the second largest mobiliser of NRI deposits among all the banks in India; second in foreign exchange business and funds management; the biggest manager of fiduciary portfolio funds and a leading player in the money market. Citibank in 1991 emerged as the foreign bank with the largest deposits and earning the highest profits. Due to this improvement, they increased their deposits from Rs 490 crore in 1986 to Rs 2642 crore in March 1992. There are some positive things happened in Citibank which leads to greater success. These ares- It was possible to give the loan to customers against their fixed deposits, but Citibank was the first to convert this into a product. After some time, Citibank again differentiated its fixed deposit again by maintaining customer deposits in units of Rs 1000. This lead to customers greater liquidity. They know that the automatic teller machines did not merely mean automatic cash disbursal but they were perceived as 24-hour banking. They always follow the belief that-A bank that would go to customers and not vice- aversa. It was reckoned that they were 20 million households in the middle market, and 1 million in the upscale segment. They provide different type of loan for different product like Citi Motor, Easy Buys, Credit Worthy, Citihome, Mediquip, etc. It is now become the biggest exporter of high caliber manpower which was used in other banks. It was the first

among all Indian banks to systematically cater to NRI and enable them to intimately play their due role in the economic development of their country. This will lead to received more number of the NRI deposits. The other bank essentially waited for the consumer to bring in the deposits, while CEIP went out to the consumer and got him to invest in India. This will helpful to achieve greater success. They always believe that to provide best bank offering services for the expatriate Indian target market. They provide best product to the customer so that they can achieve easily the more target group. For this reason, CEIP tied up with the biggest insurance outfit, they also develop new scheme for the customer like Citistar, Citilife, Citisave and multicurrency. They also used better promotional tool for promoting their product like radio, TV, The Khaleej Times, and other ethnic media. After all of the above things developing, they achieved very good result in Market share of NRI deposits, Deposits per branch and Income per branch. Drawbacks: There are some drawbacks happened in the Citibank which affected the strategy direction. These are- they only target the upper segment and the fast growing upwardly mobile middle class and only for the NRI deposits. In one scheme there was closed scrutiny of the fixed deposit revealed that if the depositor wanted a small portion of the deposit for some urgent need, the entire deposit had to be broken. So these entailing a loss for the customer. In six years, the CEIP had more than 1 billion Dollars in deposits and more than 60000 customers, but they offered only single product i.e. fixed deposits. So that they can not achieve more numbers of savings and current deposits.