LEASING IN INDIA

Industry Practices & Challenges -

Indian Perspective

Presented By

Aniket Kumar

Director – SREI International Finance Limited

Core Comm. Member - Finance Industry Development Council (FIDC)
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Evolution phases

Pre 1970 1970-1995 1995-2004

- Only HP companies - Entry into equipment - Exit of large no. of

 
finance through: companies:
- Automobile
* Leasing * Small & Large
financing mainly for
commercial vehicles * Hire Purchase
 
* Indian & Foreign
 

- Fixed Deposit: main - Commencement of car - Regulation by RBI

source of funds finance
  - Few companies
- Access to Capital Markets diversified into
related financial
 

- Funds from FDs and services

Banks
Leasing Industry Status
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Present industry order

Only few major players exist

 SREI International Finance  Shriram Finance

 Sundaram Finance
 Tata Finance

 Cholamandalam Finance
 Countrywide Finance
 Mahindra & Mahindra
 Citicorp
 GE Capital
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NBFCs on strong turf

 NBFCs are today an Integral Part of Indian Financial System

showing improving health:
 Increase in resource profile
 Significant decline in NPA
 Substantial improvement in brand image
 Improvement in profitability margins

 Maturing industry in which financially & managerially weak

companies already weeded out

 Surviving companies are large corporates with good brand image

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NBFCs on strong turf

 NBFCs enjoys a Niche position in the financial sector due to:

 Better Customer service
 Innovative & flexible financing options
 Continuously reducing NPA’s
 Healthy Capitalisation
 Innovative resource mobilisation
 Focused Operation – Products/Customers/Geography

 Formation of Finance Industry Development Council - a Self

Regulatory Organisation for NBFC’s
Challenges before the Industry
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Rising competition from banks

 Unequal competition from Banks & MNCs – Cost of Funds

 No focused / dedicated Recovery Mechanism - Housing Finance

Corporations / Banks enjoy special recovery platforms such as
DRT’s / Recovery officers / Securitisation Act 2002

 TDS on interest payments to NBFCs – Not applicable to banks

 NBFC Stigma – Credibility issues , Industry brand image

 Competition for talent - From newer financial services players

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Funding and regulatory issues

 Poor availability of medium and long term funding

 Although right of repossession of assets recognised there are

impediments in implementation

 Multiplicity of taxes - Sales tax / Service tax / Entry tax on lease

transactions

 Multiple Regulators - Lack of Comprehensive Legislation

Opportunities for the Industry
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Huge leasing opportunity
Large Potential
 Outstanding lease & hire purchase assets around Rs 20,000 crores
 Large variety of user segment
 High growth potential in Vehicle Finance
 Commercial Transportation – Govt. support, Diverse products
 Personal Transportation – Wide Variety, Low finance costs, Increasing
Propensity for credit purchase, Huge used car finance market
 New Products - Dealer Finance, Working Capital Finance, Personal Loans
 Low lease penetration ratio
 Around 1.5% as a % of Gross Domestic Capital Formation
 Very low in sectors like equipment & infrastructure
 Substantial upside possible

Expansion Opportunity
 Huge infrastructure spending in next 5yrs (apprx Rs 3,60,000 crores)
 Steadily rising disposable income – Generating huge demand for
consumer goods
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With growth ingredients in place

 Global opportunities – Cross-Border Leases allowed

 Substantially reduced dependence on public deposits

as a source of fund - Out of a total asset base of Rs
40,050 crores, public deposits account for Rs 5,850
crores as against NOF Rs 4,500 crores

 Comparatively Low Default Rate – Particularly in

consumer loans and vehicles financing as compared to
many other markets
Future Strategy
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Clear Segmentation and positioning

 Identification of focus areas and core strengths

 Consolidation

 Customer centric service

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Development of focused Business Strategy

 Improve quality of asset portfolio

 Implement risk mitigating tools

 Matching asset-liability tenure

 Sustainable, varied & innovative resource mobilisation practices

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Innovation to address evolving consumer needs

 Operating Leases

 Leveraged Leases

 Residual value products

 Using Depreciation & Tax Shields for structuring

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Shift focus from customer to product / asset

 Develop strong asset management capabilities including repossession
& remarketing
 Long term mutually beneficial vendor relationships

Cross selling
 Distribution of Financial Products
 Distribution of Insurance Products

Securitisation
 Strong liability product
SREI Experience
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SREI’s introduction

 SREI International Finance Ltd. (SREI) was set up in 1989

 Major player in infrastructure project financing – Power, Roads and
Ports
 Market leader in financing infrastructure construction equipment by
way of Lease
 32 offices spread across India
 Total assets under management over US$ 450 million
 Shareholders’ Funds of about US$ 50 million
 Disbursement of more than US$ 265 million during last year
 Credit rating in ‘AA’ category – signifying high credit quality & high
investment grade
 Recipient of prestigious Willis Harman Spirit of Work Award
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SREI’s relationships

 IFC Washington, FMO Netherlands and DEG Germany hold 19% equity

 Host of international banks and institutions have extended lines of credit

and mezzanine capital

 Strong alliances with leading global and local vendors such as Caterpillar,

Volvo, Ingersoll Rand, JCB, Metso Minerals, Writgen, Vermeer, Atlas

Copco, Ashok Leyland, Telcon, L&T, Tata Motors, etc.

 Robust customer base including large Indian and multinational corporates

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SREI’s success factors

 Infrastructure focused player with end to end services i.e. advisory,

structuring and lending

 Offers infrastructure financing across broad spectrum - from small to

big projects with strong appraisal, recovery and redeployment mechanism

 One of the lowest NPAs (1.01%) in the industry with strong integrated
risk management system and project appraisal techniques

 Innovative solutions to enhance competitiveness – securitisation, co-

branding, and setting up of equipment bank

 Strong customer focus and quick response time enables offering

customised products and tailor made solutions
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SREI INTERNATIONAL FINANCE LIMITED

Vishwakarma
86 C , Topsia Road (S)
Kolkata – 700 046
INDIA

Tel : +91 33 2285 6294

Fax : +91 33 2285 7542
Mobile : ( +91) 98300 62954
Email : sunil@srei.com
Web Site : www.srei.com
THANK YOU