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., New Delhi, 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 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$ 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 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

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