Ajay Banga, Citigroup Inc.’s (C) Asia-Pacific chief, said yesterday that his company would not sell its stake in India’s Housing Development Finance Corp. (HDFC), but did not comment on reports that the largest U.S. bank is about to sell its back-office unit to Tata Consultancy Services Ltd. (TCS). “India is a very critical growth market for Citi,” Banga told India’s Mint in an interview published yesterday. “We have been retaining profits locally and investing in India. We have also moved capital to India where necessary.”

As Citi struggles with mounting subprime losses, it becomes increasingly likely that the banking giant will divest some of its operations in an effort to streamline operations and generate fast capital. But Banga made it clear that selling its 11.74% stake in HDFC was not an option.

“No. We have no intention to do that,” he said. “HDFC is an outstanding institution and we have no plan whatsoever to divest our stake. It has been a great investment for our shareholders.”

The rapid growth of India’s economy, as well as a new focus on infrastructure development, has made the nation a premier destination for investment – a fact that has not been lost on the besieged Citi. [Please click here for a related story on emerging market investment growth in today’s issue of Money Morning.]

“[Those prospects] fit our product and franchise capability. We have faith in India’s growth,” Banga told Mint.

Banga did not comment on recent reports that Tata Consultancy Services is close to buying Citigroup Global Services, Citi’s back-office unit, for $500 million to $550 million.

The fact that India’s top software exporter has expressed interest in buying a branch of Citigroup’s operations, highlights the growing desire for foreign firms to expand globally, as well as the flood of new takeover opportunities brought about by low valuations.

“It’s a good time for Indian companies who want to acquire U.S. [business process outsourcing groups]… as valuations have corrected significantly,” Anurag Purohit, Vice-President of Religare Securities, told the Financial Times.

India’s business process outsourcing (BPO) industry has grown by more than 35% over the past three years, the FT said. Export revenues are expected to reached nearly $11 billion in the last ten years and are expected to hit $50 billion by 2013, according to Nasscom, India’s information technology industry lobby.

Citigroup Global Services has more than 60 million customers throughout Asia, Europe, Africa, and North America. Its addition, the deal would bring more than 11,000 employees to TCS’ existing BPO team of 8,000.

Source: Citi Denies Shopping Stake in HDFC, but Other Assets are Still Up for Grabs