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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

1970-1995

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

- Only HP companies - 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 - Access to Capital Markets diversified into 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 Citicorp

Shriram Finance
Tata Finance

GE Capital

LEASING IN INDIA

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

LEASING IN INDIA

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

LEASING IN INDIA

Development of focused Business Strategy


Improve quality of asset portfolio Implement risk mitigating tools Matching asset-liability tenure Sustainable, varied & innovative resource mobilisation practices

LEASING IN INDIA

Innovation to address evolving consumer needs


Operating Leases Leveraged Leases Residual value products Using Depreciation & Tax Shields for structuring

LEASING 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

SREIs introduction

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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

SREIs relationships

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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

SREIs success factors

LEASING IN INDIA

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

LEASING IN INDIA

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

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