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LEASING IN INDIA. Evolution, Industry Status, Problems, Challenges, Opportunities & Future Strategy - Indian Perspective Presented By Rahul Gupta General Manager-International Business. NBG Printographic Machinery Co. Pvt. Ltd., www.nbgprintographic.com New Delhi, India.
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LEASING IN INDIA Evolution, Industry Status, Problems, Challenges, Opportunities & Future Strategy - Indian Perspective Presented By Rahul Gupta General Manager-International Business NBG Printographic Machinery Co. Pvt. Ltd., www.nbgprintographic.comNew Delhi, India
Present Industry Order • 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 • Shriram Finance • Tata Finance • Countrywide Finance • Citicorp
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 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
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
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 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
Funding and Regulatory Issues • 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
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
With growth ingredients in place • 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
Clear Segmentation and Positioning Clear Segmentation and Positioning • 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
Development of focused Business Strategy • Improve quality of asset portfolio • Implement risk mitigating tools • Matching asset-liability tenure • Sustainable, varied & innovative resource mobilisation practices
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