Mumbai: Sipko Schat, chairman of wholesale banking and a director at Rabobank Nederland, has been coming to India since 1998 when the group set up a non-banking financial company (NBFC) in India. The 6\u20194\u201d-tall banker\u2014he\u2019s the shortest in his family, he says\u2014loves Indian curry as long as it\u2019s not too spicy. He sees huge potential for business in agriculture and food processing in India, both in terms of lending and advisory, particularly after the government decided to open up the retail sector for foreign investments. Rabobank got the banking regulator\u2019s nod to start operations in India in March. Schat, 51, who steers Rabobank\u2019s international operations, spoke in an interview about the bank\u2019s India plans. Edited excerpts:
\nYou have come to India at a time when inflation is high, as are fiscal and current account deficits, and the economy is slowing.<\/p>\n
Coming from Europe we also have our own issues. We see India as a long-term plan. We started in 1998. It has always been an interesting market for us and our focus has been on food and agri (businesses), where we see big changes in India and also big growth. Most of our clients outside India are willing and more than prepared to look at India, and we see a lot of trade and foreign direct investment enquiries. India fits our long-term strategy despite the short-term issues today.
\nWhat is your plan exactly?
\nWe started Yes Bank with three partners, including Rana Kapoor. We still have our non-bank finance company and it serves us well.
\nThe activities of the bank and the non-bank finance company are separate. Yes Bank was co-founded by us, but as a result of our activities within the non-bank finance company and request from our clients, we wanted to have a full (banking) licence here.
\nSo we had to divest our stake in the bank, but still kept a 4.9% stake as financial interest. We have fond memories of Yes Bank and share a good relationship with them, but our focus is different from their focus.
\nCouldn\u2019t you have convinced the board to use Yes Bank as a vehicle for your business?
\nYes Bank was set up as a retail bank with very strong focus in cities, which doesn\u2019t link in to our supply-chain management in agriculture communities. It\u2019s a good model, but it\u2019s different from which we envisage.
\nWill you hold on to the 4.9% stake in Yes Bank?
\nFor the moment. It has served us well and we see more upside potential, but it\u2019s not a strategic stake for us any more.
\nTake us through the India strategy.
\nWe are now present in 44 countries and in all these countries, we follow the same approach. We look at nine sectors such as sugar, beef, dairy, wine and other beverages, and the global sector teams follow our clients worldwide. So, for instance, when sugar companies are looking for investments outside India or the other way around, we can serve them on a global basis. That\u2019s the model we also implemented over the last two years here in India and that works well. We also serve smaller companies and conglomerates like the Tatas, because they also cover food and agri industry and we see them as important drivers for the rest of our businesses.
\nThe public sectors banks are dominating the hinterland. With one branch in Mumbai, how do you plan to fight them?
\nThe chain starts with farmers and ends with branded food companies and retail. The whole chain we try to present with an emphasis on food processing and trade, and branded food companies. It\u2019s not our ambition to compete with the local state banks with one office. What we want to do is provide our services for consultancy and M&A (mergers and acquisitions) for that industry, and work with local states and government on projects.
\nWe also have a $120 million (around Rs 630 crore) private equity fund with IFC (International Finance Corporation, a member of the World Bank group), focused on agri business. There is a need for cold storage, logistics and port facilities. That\u2019s the area we are looking at. We have invested about 70% of the money and (are) planning a bigger second fund shortly.
\nHow will you actually enter rural India?
\nThe prime focus today is on the corporate side, but we have relationships with micro credit institutions and we finance and help them as well.
\nWe would like to expand our branch network and that process takes time. If there would be a possibility, we would expand our network more rapidly, but that depends on what the RBI (Reserve Bank of India) wants.
\nAt this point how many branches do you want?
\nTen to 15 will be helpful in major centres and also in agricultural centres. Another area of concern in India is regulations such as minimum support price and periodic farm loan waivers.
\nWe have said in our studies that the way to progress and to change is less regulation and, therefore, create more possibilities for private forces. And retail (opening up the sector to foreign investment) is a good example of that\u2014it\u2019s a very good step forward.
\nEvery foreign bank comes to India seeing huge opportunity. How will you be different from the others?
\nIt\u2019s a discussion we also have in-house, because some of the products we offer are the same products that others offer. Our organization is different in terms of constitution\u2014it\u2019s over 120 years old, founded by farmers; it\u2019s a cooperative and not listed. And we have \u2018AAA\u2019 rating.
\nWe always put the client first because we do not have shareholders, so that makes the whole analysis different. Because it was a bank founded by farmers, it\u2019s in our DNA, which makes it easier to bridge between public and private sectors. We are in between.
\nWhat are your focus areas within agriculture?
\nFertilizers and seeds…, but also farm equipment and packaging and diary. If you look at where we set out the definition, it\u2019s almost 20% of the world\u2019s growth market… Not only farmers, there are branded food companies, breweries, spirits and food retail.
\nHow do you manage to hold on to your highest rating among European banks?
\nI think it\u2019s the model\u2014we have a different risk profile. On the other hand, ratings are under stress; even our rating has a negative outlook, so it\u2019s easily conceivable that we may be downgraded sometime. But I think it\u2019s more the long-term view of strong capital base and, of course, we are the dominant bank in the Netherlands and any strong bank starts with a dominant market position.
\nWhat will be the role of the NBFC now that you have a bank?
\nWe will keep it separate. Our renewable lending is in that portfolio, our offshore lending is in that book. What we want to do in the bank is what we couldn\u2019t do in the non-bank finance company\u2014trade finance, treasury, commodity, derivatives, cash management, flow business, which I think is a big differentiator and was what was lacking.
\nAny concerns?
\nThere are clearly challenges in India as the economic environment is more gloomy than it was 18 months ago. But the long-term potential is far bigger over here and we see a big shift. That\u2019s the reason why many foreign banks are coming here. Asia is changing and there will be dips, but the trend is positive and it goes upwards.
\nThere is so much potential in this country which is not used, in terms of labour force, logistics, education.
\nIn the early days, we supported the Tatas when they made their first acquisition with Tetley Tea and we now see where they are. And that\u2019s not the only one. There is a big difference and Indian firms are now making acquisitions in the US and Europe.
\nOn a five-year horizon, what is your vision for India?
\nI hope that we have lot of branches. Our intimacy with 40 core clients and 60 smaller clients should be moved to 300-400 clients, where we really have intimate boardroom access, where we can provide a full product range. That will be a big step.
\nIn terms of balance sheet size?
\nI think we will move to $8-10 billion. It also depends on the combination. For me, I would like to see the bank as a trusted adviser for major companies in the industry in the future.<\/p>\n","protected":false},"excerpt":{"rendered":"
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