Vanni d’Archirafi | Regulator intensity will continue to increase

Vanni d’Archirafi | Citigroup

Mumbai: Francesco Vanni d’Archirafi is chief executive officer of Citigroup Inc.’s trade finance, cash management and treasury unit. Widely considered as the second most powerful man in the approximately $78 billion (2011) US lender, and a possible successor to chief Vikram Pandit, d’Archirafi is also chairman of Citibank Europe Plc, which gives him a bird’s eye view of the crisis in that continent. d’Archirafi spoke in an interview on his business expectations and provided a perspective on the European debt crisis. Edited excerpts:

What brings you to India?

I have been part of the executive committee in the Citi transaction services (CTS) business since 2003. Now I run CTS globally. India has always been important to us. Our business here is one of the largest services business globally and is growing very fast. I am doing a tour of all important countries and India is certainly at the top of the list.

We think that by 2050, India could be one of the largest if not the largest economy and so we plan to help our global clients in India, both companies and financial institutions, and also help Indian companies go global. I would like India to double its revenue from its current base. The last time I was here (2009), we were one-third of what we would like to be by 2015.

There is also an opportunity to build local businesses at the national, state and city level by leveraging the digital opportunity to enable the public sector provide better services to citizens. We have also decided to establish a captive in India for our fund administration business. By the end of the year, we are going to add 1,000 people to enable us to service the investor needs on a global basis.

Indian administrators manage cash in a suboptimal way. Does Citi see business there?

We are currently working with a lot of public administrators at the national, city and regional levels to enable them to run their business in a more modern and efficient way. It’s giving them more transparency and visibility on their commercial and financial flows, and in doing so, giving them the ability to control everything—from offices at the centre, either through a banking platform or through mobile devices, to the banking platform to capture an optimization opportunity. This is exactly what we do for our big multinational clients too. The government is focusing a lot on e-payment. E-tendering is also a big drive which we are doing for multiple agencies.

India has been gradually improving in terms of the payment infrastructure. But how does it compare with China and Brazil?

You have mentioned two countries that are very close to the top of the priorities for my business and my company’s business. The third one is Indonesia. There are three macro trends that affect all economies namely, globalization, urbanization and digitization.

Global commerce and global capital market flows will continue to grow for many years to come at multiples of GDP (gross domestic product) growth. Normally trade grows at two-three times the GDP growth and capital markets grow at multiples of trade growth and we intermediate trade and capital market growth in services and financial flows and treasury flows that come from two and we are very well positioned.

Second, we think there is a huge trend of urbanization, and we, therefore, as a company have decided that we are going to continue to invest around the needs of cities not only in the institutional side of the business through services, but through our financial capabilities but also through our retail and cards.

We have identified 20-25 cities around the globe that we think are the ones which will continue to attract population, where growth will continue to exceed average growth in the country and certainly of the globe and where we also think the public administrators will have?issues?to deal with such as infrastructure and efficiency.

Of all those big cities, three are in your country and there are others in China and most of them are the high-growth parts of the globe.

What challenges does your bank face, such as fewer branches, in a country such as India?

I manage the business which is on the institutional side. But my hypothesis is that what is a perceived weakness of having few branches will very quickly move into an advantage because as I said this urbanization trend is irreversible and so the wealth and the opportunity is going to be concentrated around big urban centres. In this country, it’s not only a question of branches because for every Indian who has a bank account, there are three who have a mobile.

Brick and mortar will be (an) inconvenience in the future and tomorrow, the mobile device will become a branch. Having a network is probably going to be a disadvantage because the branch manager is not going to be happy that his client base and revenue is going to go away. Therefore, he is going to resist the adoption of new technology, so having a few branches will help us concentrate on branches virtually. We have a war over manual processes in services and we are trying to eliminate paper processes from everything we do.

Currently, we live in an uncertain world. How are you coping with it?

I would say it’s a very volatile world, not only in India, like we have seen the local currency move a lot in the last few weeks. But, you look at Europe and the US. Greece, Portugal, Italy, Spain. China is slowing, Brazil is slowing. I think that we are in for a period of low growth in the developed markets which is not going to go away very soon. I also think there is an incredible important debate in the developed markets between those who think that all the problems will go away with fiscal austerity and those who think you cannot cut your way to greatness.

Has banking changed after 2008 that triggered the debate about regulation in the financial sector?

Regulator intensity has increased and will continue to increase because the recent incidents, which fortunately have not happened to us but with some of our clients and competitors, have reinforced the view in certain regulatory circles that banking needs to be more regulated. So, the intensity has certainly gone up but because of the crisis we separated Citigroup Holdings from Citicorp.

Citicorp is where the businesses of the future sit. Highly capitalized, high growth, high margins, high returns. Citi Holdings with low or negative returns was shrunk dramatically. Citicorp is very much alive for this new environment. We published our Basel III ratios in the first quarter. We continue to add to our ratios because of our earnings and also because we continue to shrink Citigroup Holdings. Because of our network we have to change, as every weekend there are many changes in many of the 96 countries that we need to be prepared for if we want to open for business on a Monday morning. So every weekend we do 15,000 changes to our software codes to be prepared on a Monday.

Your business is the largest from where Citi earns its revenues. How will the current environment challenge you?

We are a high-return business at Citi. Vikram Pandit has said that he would like services to be one-third of the normal earnings streams of Citigroup. One-third of that is a bit more than what we are doing today. Today, we do $300 million-plus in net income per month. If you agree with me on some of the trends we have mentioned before, it does not take a lot of wallet penetration to do a little bit more with our existing clients and achieve our desired objective by 2015.

You are also the chairman of Citi Europe and Ireland. How bad is the environment?

From there, it looks a low-growth environment, uncertainty, fiscal deficit, unemployment, high debt-to-GDP ratios. Nobody thought six months ago that Greece could go out but that probability has gone up dramatically. But having said that, my experience as a European and somebody who comes from the family of diplomats who have been a part of the construction of Europe, the continent has always moved forward during the most difficult times when people thought it could not be done like the formation of the euro.

Before this crisis, the euro was considered a very good reserve currency. This will force the difficult decisions to be made. Brussels will get more authority, Frankfurt will have more say and Europe will embark on a more conducive framework. I think something has to give in and hope that’s not Greece.

joel.r@livemint.com