In today’s Finshots, we explain why foreign banks have been exiting India’s retail banking business even as the economy booms.

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Now, onto today’s story.

The Story

On paper, India is a banker’s dream. Over half the population is young, eager to spend, borrow, and invest. That should mean crores of bank accounts, credit cards, car loans, and home loans.

But, one by one, the world’s biggest foreign banks, once desperate for a slice of this pie, are quietly shutting shop.

Citibank sold its consumer banking arm to Axis Bank for ₹11,603 crores in 2023. FirstRand gave up after 12 years of trying. Standard Chartered offloaded a ₹4,100 crore loan book to Kotak Mahindra last year. And most recently, Deutsche Bank has invited bids for its retail business.

Domestic banks, on the other hand, are thriving. They’ve been expanding branches, growing deposits, and buying up the very business that foreign banks are exiting. Take SBI, the largest bank, for instance. It posted a record ₹70,901 crores in FY25 profits. HDFC Bank, the private sector giant, wasn’t far behind at ₹67,347 crores. 

Clearly, retail banking works in India, and the problem wasn’t a lack of opportunity.

So why exactly couldn’t foreign banks crack it? After all, they come better equipped with capital, experience and a diversified business.

Well, the answer lies in the basics of retail banking in India. And it’s quite literally a numbers game. You need millions of customers, thousands of branches spread across the country, and a steady inflow of low-cost deposits from everyday salary and savings accounts.

That’s where Indian giants dominate. HDFC Bank runs over 9,000 branches, while SBI dwarfs everyone with over 22,000 branches. This scale pulls in lakhs of crores in low-cost retail deposits, which can then be lent profitably.

Now compare that with foreign banks. Citi had just 35 branches before its exit. Deutsche Bank still runs only 17. With so little reach, they can’t attract retail deposits cheaply. That forces them to depend on costlier wholesale funding, which eats into margins and again leaves little room to compete in the retail space.

And the numbers say that. Deutsche Bank earned ₹12,415 crores in operating income in FY25, but nearly 25% of it vanished in expenses. Standard Chartered’s income of ₹19,938 crores saw 45% wiped out by costs — ₹2,000 crores of it just on staff. When Axis Bank took over Citi’s operations in 2023, it projected 30–40% savings from Citi’s bloated cost base.

In short, without scale, the math just never worked.

Another piece of the puzzle is something called Net Interest Margin, or NIM. Think of it as the profit a bank makes on every rupee it lends. Imagine your bank pays you 6% interest on your savings but lends that same money at 12%. The 6% difference is the spread, or NIM—the bank’s core profit from lending.

And essentially, NIM shows how efficiently a bank turns deposits into profit. So if a bank reports a NIM of 6%, it earns ₹6 for every ₹100 it lends. But that ₹6 still has to cover salaries, branch costs, and bad loans, so the actual profit is much smaller.

For Indian giants, NIM usually hovers around 3–4%. Kotak Bank has even pushed it up to 4.6% in recent quarters. That may not sound like much, but because these banks operate at massive scale, it translates into eye-popping profits.

Now here’s the thing. Foreign banks actually post similar or even higher NIMs. Deutsche Bank reported 4.9% and Standard Chartered 4.6% in FY25. Sounds good, no? Well, not quite. Because once you factor in their costs, the picture changes fast.

Deutsche Bank, for instance, spent over ₹3,100 crores on operating expenses in FY25, leaving just ₹3,931 crores in net profit. Standard Chartered burned through nearly ₹8,900 crores in expenses, bringing its net profit down to ₹7,089 crores.

All that says that while the margins on paper look fine, the lack of scale means expenses chew up most of the profits. And with just a handful of branches to spread costs across, foreign banks simply can’t turn deposits into profits as efficiently as Indian banks with their massive retail networks.

Next, there’s the structure of banking in India. You see, the rulebook looks different if a bank isn’t based here. To scale retail operations, RBI requires foreign banks to switch to a wholly-owned subsidiary model. This makes scaling through the branch model complicated.  Since it means tying up ₹3 billion in capital, overhauling governance with Indian directors, and navigating through new compliance. Back in 2021, even Deutsche Bank’s India head pointed out that the subsidiary model offered them little benefit.

With that being said, foreign banks don’t leave India because of retail competition alone. Sometimes they do it as part of their global strategy.

Citibank’s India exit was part of a wider exit, leaving 14 markets in total including China, Australia and South Korea. This was to focus more on their institutional banking and wealth management segments. Standard Chartered chose to focus more on wealth solutions. Their wealth management made $694 million last year after growing by 32%. Even Deutsche Bank announced 2,000 job cuts in its retail arm globally before news of a sale surfaced.

So while foreign banks walk away from retail, they aren’t walking out of India entirely. They still run wholesale, institutional, and wealth businesses.

And there is a consolation to these exits since they create big opportunities for Indian banks. Those assets and customers foreign banks acquired are still valuable to the banking industry. So it’s not like they are walking out empty handed. Rather, they get to sell it to the only other parties who can buy their business and are well placed to grow it. Axis Bank gained 2.4 million customers and 1.8 million credit cards from Citi, Kotak picked up Standard Chartered’s loan book, and while Deutsche Bank doesn’t have a buyer yet, we can assume that it could be a bank with deep pockets.

So yeah, foreign banks came in with global capital and decades of experience. But it was India’s domestic lenders who built the branches, wooed the deposits, and cracked the scale that retail banking demands. And maybe that goes to show that our homegrown banks understand India best when it comes to retail banking.

Until then…

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