Industry Practices & Challenges - Indian Perspective Presented By Sunil Kanoria Director – SREI International Finance Limited LEASING IN INDIA Core Comm. Member - Finance Industry Development Council (FIDC)

LEASING IN INDIA Pre 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 Evolution phases

Leasing Industry Status

LEASING IN INDIA Only few major players exist SREI International Finance Sundaram Finance Cholamandalam Finance Mahindra & Mahindra GE Capital Present industry order Shriram Finance Tata Finance Countrywide Finance Citicorp

LEASING IN INDIA 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 NBFCs on strong turf

LEASING IN INDIA 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

Challenges before the Industry

LEASING IN INDIA 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

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 Funding and regulatory issues

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

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 With growth ingredients in place

Future Strategy

LEASING IN INDIA Clear Segmentation and positioning Identification of focus areas and core strengths Consolidation Customer centric service

LEASING IN INDIA Improve quality of asset portfolio Implement risk mitigating tools Matching asset-liability tenure Sustainable, varied & innovative resource mobilisation practices Development of focused Business Strategy

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

LEASING IN INDIA 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 SREI’s introduction

LEASING IN INDIA SREI’s relationships 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

LEASING IN INDIA SREI’s success factors 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, co- branding, and setting up of equipment bank Strong customer focus and quick response time enables offering customised products and tailor made solutions

LEASING IN INDIA Vishwakarma 86 C, Topsia Road (S) Kolkata – INDIA SREI INTERNATIONAL FINANCE LIMITED Tel : Fax : Web Site :

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