We saw the first ominous signals on the horizon?
When you are heading the world’s largest bank’s India operation, and that too in an unprecedented year for the financial markets, the job is not just about securing deposits, giving loans or doing mergers and acquisitions. Sanjay Nayar, the outgoing CEO of Citi India, the largest foreign bank in India, reveals how he led from the front in 2008 even as bad news poured in from the West right from the beginning of the year. For Nayar, the task was clear-cut: Keep communicating with employees, depositors and corporate clients.
The year 2008 started with Citi leading the way in raising capital globally (as much as $30 billion) following the write-downs in 2007. We continued to emphasise to our stakeholders that India has always enjoyed strategic importance in Citi’s international plans and the business here has consistently delivered and hence there would be no major repercussions of the global events notwithstanding stray media reports regarding lay-offs. After years of sustained growth in India, we saw the first ominous signals on the horizon. We have been quite vocal that India’s financial sector is not capacitised to support high single/double-digit GDP growth. Banks lack structural long-term liquidity to be able to meet the massive infrastructure financing needs, on top of corporate India’s growth ambitions.
Consequently, one of the supply-side bottlenecks, i.e., finance coupled with interest rate increase in response to inflationary trends led to significant margin compression across the SME and corporate sectors forcing us to take a harder look at the credit risk in our SME and corporate portfolio.
Around the same time, delinquencies in unsecured retail lending—credit cards and consumer finance— also started rising and there were signals that demand would also fall as consumers would shy away from spending. We set out on a comprehensive repositioning exercise of our unsecured consumer finance business which was plagued by overleveraging and lack of support infrastructure. We did not exit any businesses. Rather, we rebuilt them on the fundamental principles of prudent underwriting, low expense base and nurturing long-term customer relationships. We received strong support from the global team also, given the encouraging initial reads from the remodelling, which involved consolidation, relocation or closure of some branches
In the third quarter of the year, the financial and currency markets experienced unprecedented volatility—the likes of which I had not witnessed before. The global financial industry was undergoing fundamental changes. The credit markets virtually shut and the Indian corporate sector, too, got impacted due to a combination of forex derivatives losses and foreign loans; and the financing options continued to be limited. Citi’s unique advantage is and will continue to be the universal banking model. We continued to be extremely supportive of our clients in these trying times, continuously innovating to meet their requirements and asked our wealth managers to stress the importance of our business model to allay fears of clients.
The most challenging for us were the few days in November when our stock price came off significantly. While globally Citi raised $40 billion of capital benefit through an agreement with US Treasury, Federal Reserve, and FDIC, the leadership team in India, developed and executed a comprehensive communication plan to mitigate any unintended impact that the global events could have on local clients’ confidence and to sustain the revenue momentum. This also boosted the confidence of our junior employees who represent us in the market. As a result of our communication efforts, we have also received positive responses from business school students which demonstrates the strength of our Indian franchise and our long-term commitment to India.
In hindsight, this was one of the more challenging years for us as we worked towards retaining market leadership in certain products and segments and repositioning and managing credit and market risk in others so that we could continue to be a bank of relevance to our entire customer base. Our biggest focus this year was on constant communication to our employees, clients and all other stakeholders. As we enter 2009, I firmly believe that we at Citi are extremely well-positioned given our universal banking model to continue to capitalise on the great India opportunity.
