Evolution, Industry Status, Problems, Challenges, Opportunities & Future

Strategy -Indian Perspective

Presented By

Rahul Gupta

General Manager-International Business

LEASING IN INDIA

NBG Printographic Machinery Co. Pvt. Ltd.,

www.nbgprintographic.com New Delhi, 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

Phases of Evolution

Status of Leasing Industry in India

Only few major players (NBFCs) exist apart from a host of Public & Private Sector Banks

SREI International Finance

Sundaram Finance

Cholamandalam Finance

Mahindra & Mahindra

GE Capital

Present Industry Order

Shriram Finance

Tata Finance

Countrywide Finance

Citicorp

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 cororates with good brand image

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

NBFCs on strong turf

Problems of the Industry

Leasing Companies in India are facing certain problems

Resource Constraints due to huge capital outlay

Risk of Obsolescence - landing in too much trouble due to capital loss in case of obsolescence

Non-availability of Sales Tax Consideration on acquisition of capital equipment & lease rentals making leasing transaction uneconomical

Cut-Throat Competition in view of many players

Lack of Qualified Personnel due to nature of the job

Delay in Rental Payments which may at times result in bad debts

Attitude of Government with no defined guidelines with regard to sales tax and investment allowances of leasing business

Challenges before the Industry in context of NBFCs

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

Poor availability of medium and long term funding

Although right of repossession of assets recognized 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

Huge Leasing Opportunity

Large Potential

Outstanding lease & hire purchase assets around US$ 4 Billion 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 5-10 yrs (apprx US$ 120-150 Billion) Steadily rising disposable income – Generating huge demand for

consumer goods

Global opportunities – Cross-Border Leases allowed

Substantially reduced dependence on public deposits

as a source of fund

Comparatively Low Default Rate – Particularly in

consumer loans and vehicles financing as compared to

many other markets

With growth ingredients in place

Future Strategy

Identification of focus areas and core strengths

(Special Focus on the booming & promising ‘consumerism’

themes like Auto Industry, Telecom Sector, IT Services &

Equipment, Infrastructure Development, Social Sector with

emphasis to Health, Education, Sanitation, etc. )

Consolidation

Customer centric service

Clear Segmentation and PositioningClear Segmentation and Positioning

Improve quality of asset portfolio

Implement risk mitigating tools

Matching asset-liability tenure

Sustainable, varied & innovative resource mobilisation practices

Development of focused Business Strategy

Innovation to address evolving consumer needs

Operating Leases

Leveraged Leases

Residual value products

Using Depreciation & Tax Shields for structuring

Cross Shift focus from customer to product / asset

Develop strong asset management capabilities including

repossession & remarketing

Long term mutually beneficial vendor relationships

Cross S Shift

Distribution of Financial Products

Distribution of Insurance Products

Strong liability product

Cross Selling

Securitization

THANK YOU