Industry Practices & Challenges -Indian Perspective

Presented By

Sunil Kanoria

Director – SREI International Finance Limited

LEASING IN INDIA

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

LEASING IN INDIALEASING IN INDIA

Pre 1970 1970-1995 1995-2004

- Only HP companies 

- Automobile financing mainly for commercial vehicles 

- Fixed Deposit: main source of funds

- Entry into equipment finance through:

* Leasing

* Hire Purchase 

- Commencement of car finance 

- Access to Capital Markets 

- Funds from FDs and Banks

- Exit of large no. of companies:

* Small & Large

* Indian & Foreign

- Regulation by RBI

- Few companies diversified into related financial services

Evolution phases

Leasing Industry Status

LEASING IN INDIALEASING IN INDIA

Only few major players exist

SREI International Finance

Sundaram Finance

Cholamandalam Finance

Mahindra & Mahindra

GE Capital

Present industry order

Shriram Finance

Tata Finance

Countrywide Finance

Citicorp

LEASING IN INDIALEASING IN INDIA

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

NBFCs on strong turf

LEASING IN INDIALEASING IN INDIA

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

NBFCs on strong turf

Challenges before the Industry

LEASING IN INDIALEASING IN INDIA

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

Rising competition from banks

LEASING IN INDIALEASING 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

Funding and regulatory issues

Opportunities for the Industry

LEASING IN INDIALEASING IN INDIAHuge 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

LEASING IN INDIALEASING 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

With growth ingredients in place

Future Strategy

LEASING IN INDIALEASING IN INDIA

Clear Segmentation and positioning

Identification of focus areas and core strengths

Consolidation

Customer centric service

LEASING IN INDIALEASING IN INDIA

Improve quality of asset portfolio

Implement risk mitigating tools

Matching asset-liability tenure

Sustainable, varied & innovative resource mobilisation practices

Development of focused Business Strategy

LEASING IN INDIALEASING IN INDIA

Innovation to address evolving consumer needs

Operating Leases

Leveraged Leases

Residual value products

Using Depreciation & Tax Shields for structuring

LEASING IN INDIALEASING IN INDIA

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

LEASING IN INDIALEASING IN INDIA

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

SREI’s introduction

LEASING IN INDIALEASING IN INDIASREI’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

LEASING IN INDIALEASING IN INDIASREI’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

LEASING IN INDIALEASING IN INDIA

Vishwakarma 86 C , Topsia Road (S)

Kolkata – 700 046INDIA

SREI INTERNATIONAL FINANCE LIMITED

Tel : +91 33 2285 6294Fax : +91 33 2285 7542Email : sunil@srei.comWeb Site : www.srei.com

THANK YOU