SCF in India an overview and way forward
-
Upload
goelnaveen1973 -
Category
Documents
-
view
286 -
download
12
Transcript of SCF in India an overview and way forward
![Page 1: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/1.jpg)
SUPPLY CHAIN FINANCE IN INDIA Overview and Way Forward
Supply Chain Finance and its Alternatives Presented by: Naveen Goel, Marcus Evans GFMI Conference, Singapore Sr. VP & Head-Supply Chain Finance,
Date:23rd -24th February, 2016 IndusInd Bank Ltd., India.
![Page 2: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/2.jpg)
▣ Introduction to Supply Chain Finance(SCF)
▣ SCF Offerings
▣ SCF Market in India
▣ Challenges
▣ Opportunities & Way Forward
Contents
![Page 3: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/3.jpg)
‘’ Introduction to SCF
![Page 4: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/4.jpg)
What is SCF?
▣ Supply Chain Finance (SCF) provides short-term credit that optimizes working capital for both the buyer and the seller. ▣ Supply chain finance generally involves the use of a technology platform in order to automate transactions and track the invoice approval and settlement process from credit disbursal to the repayment on due date.
![Page 5: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/5.jpg)
SCF v/s Traditional Finance Traditional Finance SCF
Funding Sources Cash Rich Buyers and Buyer’s working capital Banker.
Buyer, Supplier, Buyers or suppliers Banks, 3rd Party Financial institutions
Financing Rates Typically higher interest rate. Typically lower ROI due to better credit rating of buyer.
Payment Timings Upon invoice submission and Buyers invoice approval leading to delay in payment.
Faster because of automation and pre approved program norms
Risk Involved Higher Risk for the bank due to open end use of funds
Lower credit risk as the movement of goods & End use of funds can be tracked better.
Security requirements Primary & Collateral both Normally no collateral
![Page 6: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/6.jpg)
Stakeholders in SCF and their Role
• Financier • Borrower
• Borrower • Key Decision Maker and Major Beneficiary
Manufacturer/ Corporate
Dealer / Distributor
Bank / FI’s Supplier/Vendor
![Page 7: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/7.jpg)
Advantages of SCF
Supplier
• Early Payment reduces financial dependence on the buyer
• Reduces cost of capital by leveraging the buyers credit rating
• Increases certainty of cash flows
• Provides pre-shipment; WIP financing
• Financial Discipline
Manufacturer / Corporate
• Minimizes investments in WC
• Reduces Cost of Goods Sold (COGS)
• Reduces total borrowing cost.
• Automation reduces administration cost
• Increases cash flow • Increases stability
of supply chain • Ensures availability
of goods for end users
• Increases the sale
Dealer / Distributor
• Provides much needed working capital for purchase of inventory.
• Lower cost of funds then other working capital products
• Increases sense of financial discipline due to short duration.
• Automation reduces administration cost
Financiers
• Diversification of risk
• Quick asset building and fee revenue
• Cross-sell opportunities
• The process of evaluating the need of money makes it simpler by defined movement of goods.
• Defined end use resulting into lower risk of diversion of funds.
![Page 8: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/8.jpg)
‘’ SCF Offering
![Page 9: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/9.jpg)
VENDOR FINANCE
VENDOR FINANCE (Upstream Finance)
Banks provides Bill/ Invoice discounting facilities to the Channel/Partners(vendors/ suppliers)of large companies for making payments on behalf of corporates to the vendors, for the goods supplied by them.
CHANNEL FINANCE (Downstream Finance)
Bank/FI provides Short-Term revolving loan facility to the Channel Partners/ Dealers/ Distributors of large corporates for purchasing goods from the company and selling it further to customers.
CHANNEL/Dealer FINANCE
![Page 10: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/10.jpg)
SCF – Vendor Finance (Transaction Flow)
![Page 11: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/11.jpg)
SCF – Channel Finance (Transaction Flow)
Corporate Dealer
Bank
(3)Goods
(1) Payment request
(2) Payment
![Page 12: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/12.jpg)
Process Flow – Channel Finance
Identification of the
Corporate
In Principal Agreement
with the corporate
Product Development
Product Launch
Marketing of the SCF
Program to the Dealers
Loan Assessment
Loan Sanction and
Documentation
Loan Disbursement
Payment to corporate based on
invoicing by dealer
Supply of goods to dealer by corporate
Goods sold by the dealer
Repayment to the bank by
Dealer as per due date
![Page 13: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/13.jpg)
‘’ SCF Market in India
![Page 14: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/14.jpg)
SCF Market in India
▣ Market Size – aprox. INR 650 billion($10 bln) ▣ Key Players
o State Bank of India o HDFC Bank o Standard Chartered Bank o Axis Bank o IndusInd Bank o Tata Capital
▣ Market is mostly fragmented between PSU Banks (SBI, PNB Etc.), Pvt Sector Banks (HDFC, Axis and others), MNC Banks (Stan C, HSBC etc.) and NBFC’s (Captive Finance companies of corporate such as Tata Capital, Aditya Birla Finance etc.)
![Page 15: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/15.jpg)
SCF Market in India (Cont.)
SBI 18%
HDFC 21%
ICICI Bank 12%
Stan C 13%
Axis Bank 11%
IndusInd 5%
Others 20%
Channel Finance (INR 400 Billion/$6 Billion)
SBI 16%
HDFC 24%
Kotak 10%
MNC Banks 15%
Othrs 35%
Vendor Finance (INR 250 Billion/$4 Billion)
![Page 16: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/16.jpg)
‘’ SCF Program: A Competitive Landscape
![Page 17: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/17.jpg)
SCF @ IndusInd Bank
▣ Tie-up with all the major corporates. ▣ Offers both Vendor Finance & Channel Finance ▣ Dedicated teams to handle Product, Business, Risk and Operations ▣ Robust Credit Evaluation and post disbursement monitoring system. ▣ Stop Supply arrangement with all the corporates in channel finance resulting into negligible delinquency ▣ Presence across India at all the major locations through dedicated Relationship Team. ▣ An automated process providing ease of access to all the stakeholders. ▣ The entire approach is to build up a robust platform basis sharing of information between different stakeholders i.e. corporate, supplier, dealer and banks.
![Page 18: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/18.jpg)
Competitive Landscape
SBI – Largest PSU Bank in SCF space. • e-VFS and e-DFS. • Very competitive pricing due to low cost of funds. HDFC Bank - Largest Pvt sector player in SCF space. • Integration with Retail Finance • Complete Product Suite.
Tata Capital – Largest NBFC player in SCF space. • Product Flexibility • Leveraging on Tata Group Strength Standard Chartered – Largest MNC player in SCF space. • Operates through outsource Model • Major Portfolio in Non Auto sector
![Page 19: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/19.jpg)
‘’ Challenges
![Page 20: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/20.jpg)
Challenges
▣ Available Capital, Liquidity & regulatory requirements for Banks ▣ Lack of proper systems & infrastructure(for KYC etc.) ▣ Low pricing – Managing Cost of Fund ▣ Diversions of funds by borrowers for other purposes ▣ Non availability of a common platform for financers ▣ Concentration on few selected industries only ▣ Onboarding & monitoring of dealers/suppliers due to bigger geographies ▣ Unsecured nature of lending ▣ Awareness about the product among stakeholders such as Channel partners and suppliers.
![Page 21: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/21.jpg)
And tables to compare data
![Page 22: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/22.jpg)
Opportunities & way forward
▣ E-commerce – Inline with the current trend of Indian Economy moving towards online sales from offline platforms banks have a huge opportunity to fund different supply chains. ▣ Integrated Approach – Opportunity for banks to fund both forward and backward integration along the value chain. Some of the banks (notably HDFC Bank) have worked to their advantage in this space. ▣ Online Platforms / Automation – This can provide a big leverage in terms of both integration and flow of information for the Banks & other stake holders. ▣ Potential Sectors- Focus on less tapped potential Industries i.e. Commodities, Electricals & Electronics, Consumer Durables, FMCG & Agro based Industries to finance their Supply chain.
![Page 23: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/23.jpg)
Opportunities & way forward..contd..
▣ Focus on shorter periodic Assessments for flexible credit decisioning ▣ Templated Innovative products for New Start ups ▣ Outsourcing of different jobs to external agencies ▣ Launch of some common platform/association of SCF
![Page 24: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/24.jpg)
Proposed SCF model for Pepsi’s Supply Chain of manufacturing Wafers
Tripartite
Agreement
Seed
Manufacturing
CO.
Pepsi Co Dealer Potato
Grower
Bank
Dealer Finance (1)
Working Capital
Finance
(2)
Pepsi
Co’s
Comfort
Letter
to Bank
(3)
Supplier’s
Finance(30 Days)
(4)
Seed
(8)
Potatoes
Wafers (6)
Payment
(5
)
Cro
p L
oa
n fo
r 9
0 D
ays
![Page 25: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/25.jpg)
SCF Model for Consumer Durable sector
(reflecting e-commerce transaction flow)
Philips
Bank Dealer
Flipkart
![Page 26: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/26.jpg)
SCF Model for XYZ Bank Ltd
(Fully Integrated Model)
XYZ Bank
Customer
Dealer
Maruti
![Page 27: SCF in India an overview and way forward](https://reader034.fdocuments.net/reader034/viewer/2022042509/58f1698a1a28ab34588b459f/html5/thumbnails/27.jpg)
‘’ Disclaimer: The opinions expressed in this presentation and on the previous slides are solely those of the presenter and not of his organization. Data unless specified is from anonymous sources and personal interactions.