Money & Banking

Fraud not to impact Citibank India’s short-term rating: Fitch

PTI New Delhi | Updated on November 10, 2017 Published on January 30, 2011

Mr Shivraj Puri, the alleged mastermind behind the estimated Rs 400 crore Citibank fraud.   -  PTI

Rating firm Fitch on Sunday said the Rs 400-crore fraud at Citibank India’s Gurgaon branch will not impact the bank’s short-term credit rating, but warned against waning investor confidence that could lead to client exits and impact profitability.

“The fraud in the wealth management business of Citibank, N.A. — India Branch will not have any impact on the branch’s National Short-term rating. The rating continues to factor in the financial profile of the parent of which the branch is a part, supported by the well-established funding franchise of the bank’s operations in India,” Fitch said in a statement.

However, Fitch cautioned that though the branch’s strong capital structure has capacity to absorb any loss, there could be adverse reputational impact of the fraud.

This may affect the bank’s wealth management business in India, fees from which accounted for about 8 per cent of Citibank India’s net income in the fiscal ended March 2010, it added.

“Any erosion of investor’s confidence could slow down growth or even reduce profits in this business, particularly if some of the existing clients choose to exit. Investments in improved surveillance and processes would also affect profitability,” Fitch said.

The rating firm also highlighted the need for tighter operational risk management for wealth management business in India, which has attracted many domestic and foreign players recently.

Last month, a relationship manager at the Gurgaon branch of Citibank was arrested for allegedly duping about 40 HNI investors and corporate entities to the tune of Rs 400 crore.

Mr Shivraj Puri, the Relationship Manager with Citibank’s Gurgaon branch, is accused of luring HNIs to invest in bogus schemes by promising unusually high returns, which he ’substantiated’ with a forged letter from market regulator Sebi. A multi-pronged probe involving the police, banking regulator RBI and capital markets watchdog Sebi is currently underway in the fraud case involving Puri.

Following the fraud, Citibank had said it is in the process of assessing the losses to its clients and is working out a “fair compensation” to the impacted customers.

“The final loss to the bank would likely be far higher than the capital allocation of estimated Rs 100 million for operational risk in the wealth management business. Nevertheless, the branch’s strong capital structure provides good capacity to absorb any loss, given the core Tier 1 ratio of 15.7 per cent at end-September 2010,” Fitch noted.

Citibank operates 42 branches in India and is predominately located in large cities. The banking operations contribute close to 85 per cent to the total assets of Citigroup in India.

Published on January 30, 2011
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