LEASING IN INDIA

Industry Practices & Challenges -

Indian Perspective

Presented By Sunil Kanoria Director SREI International Finance Limited Core Comm. Member - Finance Industry Development Council (FIDC)

LEASING IN INDIA

Evolution phases

Pre 1970
- Only HP companies

1970-1995

1995-2004
- Exit of large no. of companies: * Small & Large * Indian & Foreign - Regulation by RBI

- Entry into equipment finance through: - Automobile * Leasing financing mainly for commercial vehicles * Hire Purchase - Fixed Deposit: main - Commencement of car finance source of funds

- Few companies diversified into - Access to Capital Markets related financial - Funds from FDs and Banks services

Leasing Industry Status

LEASING IN INDIA

Present industry order

Only few major players exist
 SREI International Finance  Sundaram Finance  Cholamandalam Finance  Countrywide Finance  Mahindra & Mahindra  GE Capital  Citicorp  Shriram Finance  Tata Finance

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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

LEASING IN INDIA

NBFCs on strong turf



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

 Better Customer service
    

Innovative & flexible financing options Continuously reducing NPAs Healthy Capitalisation Innovative resource mobilisation Focused Operation Products/Customers/Geography

Formation of Finance Industry Development Council - a Self Regulatory Organisation for NBFCs

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 DRTs / 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

  

Funding and regulatory issues

LEASING IN INDIA

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

With growth ingredients in place

LEASING IN INDIA

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

LEASING IN INDIA

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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SREIs 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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SREIs 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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SREIs 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, cobranding, 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