Mumbai: Netherlands-based Rabobank Nederland announced on Friday that it had received permission from the Reserve Bank of India (RBI) to start full-fledged local banking operations, as it seeks to take advantage of growth prospects in the world’s second fastest expanding major economy.
“This will help Rabobank to substantially expand its current range of services in the Indian market,” the Dutch lender said. “Rabobank’s application for this licence is part of the bank’s international strategy to expand its activities in major growth markets with a strong food and agriculture base.”
The licence comes nine months after it sold an 11% stake in private sector Yes Bank Ltd. It still has a 4.82% holding in the Indian lender, according to the Bombay Stock Exchange.
Under Indian banking regulations, a foreign bank holding more than 5% equity in an Indian lender can’t apply to open branches in the country.
Rabobank was a promoter in Yes Bank, holding as much as 20% when the private bank got a licence in 2004. This stake was reduced to 15.82% as Yes Bank sold shares to raise capital.
In India, the Rabobank Group also runs Rabo India Finance Ltd, a non-banking financial company that lends to food and agri-businesses and renewable energy companies, besides advising on mergers and acquisitions.
A Rabo India Finance spokesperson said the bank received the RBI approval on Thursday.
“The licence gives us an opportunity to start banking operations, but it is too early to say on what we will do with Rabo India,” she said.
Globally, Rabobank is focused on the food and agriculture business with origins in the local loan cooperatives that were founded in the Netherlands nearly 110 years ago, according to its website.
“India’s food and agriculture sector is currently estimated to be €185 billion (Rs11.7 trillion) and it is estimated to reach a size of €400 billion by 2025,” Rabobank said, adding that with a likely gross domestic product (GDP) growth of 7-9% annually, India could become the third largest economy by 2030.
The Indian licence will allow Rabobank to accept deposits and provide working capital loans to companies, besides dealing in foreign exchange, domestic fixed-income products and trade finance.
With the credit to GDP ratio at just about 60%, India presents an opportunity for new entrants such as Rabo, said Rajeev Mehta, research analyst with India Infoline Ltd.
Credit to GDP ratio is bank loan or credit as a percentage of GDP. Lower credit to GDP ratio means there is a huge scope for banks to lend more.
“Developed countries have a credit to GDP of more than 100%, so India presents a huge opportunity,” he said. “But with only one branch, Rabo will start with wholesale and corporate banking.”