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 6’4"-tall banker—he’s the shortest in his family, he says—loves Indian curry as long as it’s 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’s nod to start operations in India in March. Schat, 51, who steers Rabobank’s international operations, spoke in an interview about the bank’s India plans. Edited excerpts:

You have come to India at a time when inflation is high, as are fiscal and current account deficits, and the economy is slowing.

Untapped market: Schat says there is so much potential in this country which is not used, in terms of labour force, logistics, education. Photo: Abhijit Bhatlekar/Mint

What is your plan exactly?

We started Yes Bank with three partners, including Rana Kapoor. We still have our non-bank finance company and it serves us well.

The 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.

So 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.

Couldn’t you have convinced the board to use Yes Bank as a vehicle for your business?

Yes Bank was set up as a retail bank with very strong focus in cities, which doesn’t link in to our supply-chain management in agriculture communities. It’s a good model, but it’s different from which we envisage.

Will you hold on to the 4.9% stake in Yes Bank?

For the moment. It has served us well and we see more upside potential, but it’s not a strategic stake for us any more.

Take us through the India strategy.

We 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’s 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.

The public sectors banks are dominating the hinterland. With one branch in Mumbai, how do you plan to fight them?

The 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’s 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.

We also have a $120 million (around 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’s the area we are looking at. We have invested about 70% of the money and (are) planning a bigger second fund shortly.

How will you actually enter rural India?

The prime focus today is on the corporate side, but we have relationships with micro credit institutions and we finance and help them as well.

We 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.

At this point how many branches do you want?

Ten 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.

We 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—it’s a very good step forward.

Every foreign bank comes to India seeing huge opportunity. How will you be different from the others?

It’s 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—it’s over 120 years old, founded by farmers; it’s a cooperative and not listed. And we have ‘AAA’ rating.

We 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’s in our DNA, which makes it easier to bridge between public and private sectors. We are in between.

What are your focus areas within agriculture?

Fertilizers and seeds..., but also farm equipment and packaging and diary. If you look at where we set out the definition, it’s almost 20% of the world’s growth market... Not only farmers, there are branded food companies, breweries, spirits and food retail.

How do you manage to hold on to your highest rating among European banks?

I think it’s the model—we have a different risk profile. On the other hand, ratings are under stress; even our rating has a negative outlook, so it’s easily conceivable that we may be downgraded sometime. But I think it’s 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.

What will be the role of the NBFC now that you have a bank?

We 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’t do in the non-bank finance company—trade finance, treasury, commodity, derivatives, cash management, flow business, which I think is a big differentiator and was what was lacking.

Any concerns?

There 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’s 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.

There is so much potential in this country which is not used, in terms of labour force, logistics, education.

In 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’s not the only one. There is a big difference and Indian firms are now making acquisitions in the US and Europe.

On a five-year horizon, what is your vision for India?

I 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.

In terms of balance sheet size?

I 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.