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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
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