CITIFINANCIAL TO EXIT LOW-INCOME SEGMENT

Lakshmi Vilas Bank eyes ailing Citi NBFC

Deal May Be Carried Out Via Housing Finance Subsidiary

LAKSHMI Vilas Bank (LVB), the southbased, old private sector lender, is in talks with Citigroup to acquire CitiFinancial Consumer Finance India, the struggling non-banking finance company which gives retail loans to low-income borrowers.
    LVB has hired investment bank JM Financial to carry out due diligence of Citi-Financial, which has a 9,000-crore balance sheet, 116 branches and close to 1,600 employees.
    "It's an interesting move for a conservative mid-sized bank which has stayed away from acquisitions," said a person familiar with the proposal. The LVB board recently cleared a proposal to float a wholly-owned housing finance subsidiary. This new outfit intends to acquire CitiFinancial.
    A Citi spokesperson declined to comment. CitiFinancial is part of Citi Holdings, which houses the non-core businesses of the global banking and financial services group. Citicorp, meanwhile, controls core divisions such as Citibank, the investment banking arm Citigroup Global Markets and the private equity arm CVC. In early 2009, Citi took a decision to identify non-core businesses which would be hived off over time.
    A few months ago, Citi had negotiations with Kotak Bank to sell CitiFinancial, but talks fell through with Kotak unwilling to pay the price Citi sought.
    "CitiFinancial, like some of the other consumer finance firms, wants to get out of the low-income borrower segment. Many non-banking companies have burnt fingers due to a high loan delinquency level," said a senior official of a private bank. "But Citibank India does businesses like personal loans, mortgage, loan against shares and properties, and it possibly makes a greater sense to give retail loans through the bank rather than the finance company," he said.
    At a recent townhall meeting, Citi country officer Pramit Jhaveri said the group aims to increase business by $8 billion in the next three-to-five years. The size of Citi's current business in India would be around $20 billion.
    For the 80-year-old LVB, an entity like CitiFinancial would give it access to 58 locations and help the bank, which currently focuses on Tamil Nadu and other southern states, reach out to other states.
    According to a recent news agency report, LVB shored up its top management by inducting two senior personnel from ICICI Bank and Citibank. "The bank also plans to beef up its presence by adding 35 branches to its existing network of 271 by end-FY11," said the report.