The Hindu Business Line : Sluggish growth in Citibank India profitability, operational efficiency

Declining numbers
Business per employee declines to Rs 13.6 cr against Rs 15.7 cr in 2001-02.
Profit per employee down at Rs 17.33 lakh from Rs 22.14 lakh in 2001-02.

D. Sampathkumar

Mumbai, Dec. 14 Mr Vikram Pandit, the new of CEO of Citigroup, has perhaps far more serious things to worry about than looking at how the Indian affiliate of its banking business has been faring. But if he did, he would know that at this point of time, its best years of performance are behind it.

On some of the key parameters of profitability and operational efficiency the record in recent years is one of near stagnation at best and steady decline at worst.

Consider this. The bank generated in 2001-02 business worth Rs 15.7 crore per employee. But the bank has been able to generate only Rs 13.6 crore in fiscal 2006-07, down roughly 13 per cent. On the parameter of profit per employee, another key element, the figure for the latest year stands at Rs 17.33 lakh as against Rs 22.14 lakh, its best in 2001-02.

Rising wage costs

The declining business per employee is aggravated by a rising trend of wage costs measured as a percentage of total expenses. This number grew from 8.74 per cent in 2001-02 to 15.83 per cent of total expenses in2006-07.

The net return on advances which measures the income earned on a rupee of loan after deducting the interest cost of funds deployed in such lending declined marginally from 6.64 paise in 2001-02 to 6.3 paise to a rupee in 2006-07. It is not just on lending but also on the parameter of overall return on assets (the sum of advances and investments) the bank’s performance has recorded a decline. On a rupee of total assets, the returns generated to 2.79 paise in 2006-07 against 3.60 paise in 2001-02.

Workforce quadruples

In absolute terms, profits have grown as the decline in profit per employee has been more than made good by a near quadrupling of the workforce (it has grown from 1,470 in 2001-02 to 5,194 at the end of 2006-07). But declining numbers on profitability and operational efficiency leave their impact on overall profits in the future should the effect of intensifying competition begins to reflect in volume growth.

A spokesperson of Citibank said that the reduction in numbers such as they are during this period reflect the incremental investments in consumer business. The ratios will improve substantially when the investment projects are fully executed. The spokesperson also said that the bank’s performance in comparison to its peer set (other foreign banks) is among the highest.