Citi Sleeps: What to do with Citi credit cards?

Citibank recently decided to exit the consumer banking business from 13 countries, including India. While this raises many questions, but a couple of important ones are what to do with existing Citi credit cards and reward points? Moreover, which alternate credit card to apply for?

Below are my thoughts on these questions.

Citi Credit Cards: What do with Citi credit cards?

Move incremental spending to other cards

I won’t say that you need to cancel the Citi credit cards right away, but you should accept the fact that Citi credit cards won’t be that lucrative with a new owner. Thus, you should move your incremental spending to other credit cards. No point in accumulating points with Citi now. The reason being, whoever takes over Citi credit cards will devalue the points.

Is devaluation guaranteed? Well, it’s almost a given.

This is what typically happens when you get a new owner; devaluation is a low hanging fruit to show profitability. Enough evidence around us that whenever management change happens, devaluation happens. Recent examples, Intermiles – approx. value of miles reduced from 40-50p to 25-30p; Yes Bank – value reduced to 15p from 25p. In addition, few other changes also happened when SBI and other banks took over Yes Bank, such as reduced lounge access.

Not to forget that Citi anyways was devaluing its own credit cards. For example, in 2019, it stopped giving reward points on wallet load, insurance, utility bill payment etc. In addition, it took away some benefits on its flagship Citi Prestige credit card, such as meet and greet at the airport. Therefore, if the new owner doesn’t devalue, Citi may itself do it.

Best redemption options for Citi Credit cards are as follows:

Given that devaluation is imminent, the next thing that you should start looking at is redeeming your reward points. For example, if you have any travel plans, redeem your Citi points first.  Below are the redemption options depending on your card type.

Citi Prestige card: Transfer points to partner airlines. This gives maximum value for your points. Don’t go for statement credit, it values your reward point for INR1, which is low for Prestige.

Citi Premiermiles: 1 point=45p. Use it to redeem your travel bookings on MMT or on the Citi Premiermiles website. Do not go for catalogue redemption, it doesn’t give a value of 45p per point.

Citi Rewards credit card: If you have more than 10k points, go for statement credit @35p per point. If less than that, then go for Amazon voucher @30p per point from the reward catalogue.

IndianOil credit card: Redeem if for fuel at IndianOil outlets

Don’t cancel your Citi credit card

I suggest do not cancel your credit card even after you have redeemed your points. The logic here being; Citi is known to have customers with high income and great Cibil scores. Therefore, any bank that takes over Citi’s business would love to retain those customers and hence may offer its best credit card to you. This is just a thought and may not actually play out, but no harm in trying for this once you have covered your bases.

Alternatives to Citi credit cards

Below are a few alternatives that you may explore.

Citi Prestige: Try upgrading to Infinia, if you already have an HDFC Bank credit card.  In addition, Amex Platinum and DCB can also be considered; however, they cannot enroll new customers at the moment. Other credit cards that you may consider the top-end variants of Vistara credit cards from Axis Bank and SBI. If most of your travel is on Indigo airlines, then you may also consider Indigo 6E credit cards (Not available right away due to ban on HDFC Bank).

Citi Premiermiles: Enroll for BoB Eterna, SBI Prime, SCB Ultimate etc. Other cards that offer a good number of lounge access are listed here. If lounge access is not your priority, but the reward rate is then even going for an entry-level card like Axis Ace or ICICI AmazonPay would solve the purpose.

Citi Rewards: My guess is most entry-level cards offered by other banks will give you a better reward rate than this card.

IndianOil credit card:  You can go thru my recent detailed post on fuel cards to figure out which is best suited for you.

Citi Cashback credit card:  Again, most entry-level credit cards will be better or match the reward rate of Citi Cashback card. My pick will be Axis Ace or ICICI AmazonPay credit cards.

Who will buy Citi India business?

Various news articles have pegged the value of Citi India business anywhere between USD2-4bn, i.e. INR14-28k cr. Here is my take on who could be the potential buyers of the Citi India business. My assumption is it will be an all-cash deal, as Citibank won’t like to have equity risk in the buyer.

HDFC Bank: I personally believe HDFC Bank is the frontrunner to acquire Citi. They have sufficient capital to buy. Also due to the current ban on issuing new credit cards, they are losing market share in the business. Therefore, by acquiring Citi they can get back the market share in cards and get a set of very good customers.

However, the biggest argument against this is that once Citi leaves, anyways most of the customers will gyrate towards the large three private banks in India for their banking needs. Thus HDFC will at least get 33% of those customers any which ways. Further, very likely that most Citi credit cards holders already have an HDFC Bank credit card. So not sure if they need to acquire Citi.

Axis Bank/ICICI Bank: They are also strong contenders. These banks have a strong balance sheet and have raised capital recently so may go for it.

IndusInd Bank: Indusind Bank has a history of acquisitions. It bought Deutsche Bank’s credit card portfolio, ABN AMRO’s gems and jewellery portfolio and SKS Microfinance. So very likely, it will make a bid. Further, the bank wants to grow its retail portfolio and want retail liabilities, so Citi buyout may make sense for them.

Kotak Bank: Kotak Bank the capital, tons of it. Additionally, the shareholders will be happy that eventually excess capital is put to use. Further, Kotak wants to expand its retail portfolio. Thus, it makes sense for Kotak Bank to takeover Citi India. However, Kotak’s management is known to be very conservative and won’t make an aggressive bid for Citi.

DBS India: DBS India alone won’t make a bid for Citi India. They have their plate full at the moment with the LVB merger and card launch with Bajaj Finance. Unless the DBS head office in Singapore decides to buy Citi operations in multiple Asian markets to expand its footprint.

SBI Cards: It can, but it does not have the capital to pay. Further, SBI Cards can only buy the cards portfolio and no other parts of the business. Therefore, unless, Citi plans to sell the business in parts, SBI Card won’t come into the picture at all. Even if it does, as I said they don’t have sufficient capital.

Other smaller banks and large NBFCs: For all other smaller banks, capital is a big issue. The likes of Federal, AU SFB, RBL Bank etc will be interested in Citi, but they don’t capital to buy it.

Further, even NBFCs such as Bajaj Finance might be interested in a part of the business. Further, with a recent Niti Aayog report suggesting that NBFCs be allowed to issue credit cards, Bajaj may become a likely contender for the same.

Conclusion

Plan your move from Citi credit cards to other cards but there is no need to panic. Very likely, the D-day for Citi is 12-18 months away, which gives ample time to plan and execute the move.

Are you planning to chuck your Citi credit cards or redeem your reward points? If yes, what’s your strategy? Who you think will end up owning the Citi India business? Do share your views in the comments below.

 

Image courtesy Joshua Lawrence on Unsplash