In equipment industry, we are seeing green shoots and gradual improvement: Srei MD

The process of transferring of Srei Infrastructure Finance’s lending business into Srei Equipment Finance by way of a slump exchange exercise is nearing completion, says Devendra Kumar Vyas, MD of Srei Equipment Finance. In an interview with Mithun Dasgupta, Vyas says, besides co-lending partnerships with banks, his company is betting big on equipment leasing. Excerpts:

Srei is in the process of consolidating its lending business into one entity, Srei Equipment Finance. What has been the progress and what is your strategy, going forward?

At Srei, our core expertise has always been equipment-backed financing and we have over the years developed clear understanding of various equipment and their associated risk profiles. Today, our learning has also been digitised and artificial intelligence helps us take risk call on the go. While we also understand project funding; we have decided to play on our strengths and focus only on equipment finance; hence the slump exchange. Eventually, we will witness our existing project finance portfolio running down. Our slump exchange exercise is also near to completion.

Srei is now focusing on growing its equipment finance business. What kind of growth are you expecting in this business? Is there demand for construction/infrastructure equipment?

Specifically in the infrastructure equipment space, sales of Q1 for this fiscal demonstrated slowdown, owing to the after effects of the elections and Q2 sales were affected by floods and droughts. When equipment sales drop significantly, so does the financing and leasing business because nearly 85% of equipment is procured through aided financial solutions. While on-going reports show muted credit, subdued manufacturing activities, tapering of domestic demand for key sectors and non-food bank credit de-growth to 8.3% in October 2019 from 13.4% in October 2018; specifically in the equipment industry, we are seeing green shoots and gradual improvement in the current October-December quarter. We are seeing a recovery.

The silver lining is that we are witnessing growth in segments such as consumer loan, personal loans, and gold loans. This is an indicator that consumers are willing to borrow and have confidence they can service their debts on time – a sign that recovery is in sight. The government realises that economic growth cannot be achieved without a growth in infrastructure. Worldwide, redoubling of investment in infrastructure is a key strategy to counter the impacts of a downturn. This is because infrastructure spending has a multiplier effect on the economy. For emerging economies like India, this multiplier is 2x or sometimes even 3x, which means that an infrastructure spending of 1% of GDP can boost the overall GDP by twice or thrice the amount.

Srei Equipment Finance has entered into co-lending partnerships with a few banks. What are your plans to grow this co-lending space?

We have always believed in creating new innovative solutions for our customers while enabling them to grow exponentially. The co-lending partnerships are a part of this endeavour as we believe that the combined reach and resources of an NBFC and a bank would enable customers to not just benefit novel finance solutions but also experience an array of new age banking products. We have recently tied up with five scheduled commercial banks to provide joint loans to our customers. The combined reach and resources of the two lenders under these blended lending arrangements will benefit customers with faster credit delivery and provide them access to life-cycle finance opportunities. The tie-ups are a win-win proposition for our partner banks as it gives them an opportunity to participate in a segment with high growth potential and leverage on our long standing industry understanding and partnerships with manufacturers.

We have also tied up with iQuippo, an end-to-end digital lending marketplace where a customer can choose the most suitable offer, from our tie-ups. The platform will provide transparency and simplify the loan application process and will make equipment finance decisions easy for our customers. The partnerships will also help us in strengthening our dominant leadership position in the equipment ecosystem, and will be a key driver for our growth, going forward.

Which are the new areas you have earmarked under equipment finance for growth?

The government has begun the exercise of creating a national infrastructure pipeline with a vision to invest Rs. 100 lakh crore in infrastructure over the next five years. Already highway projects worth approximately Rs. 15 lakh crore have been identified. Once these investments materialise, we will soon see positive impacts in sectors such as cement, steel and automobiles, besides of course the infrastructure and construction equipment sectors. We have always believed in enabling and participating in a growth story. Besides co-lending partnerships, we are betting big on leasing.

For a long time now, the infrastructure sector is being driven primarily by policy facilitation and push in public spending by the central government. The participation of private sector investments has remained tepid, mainly because our banking system is under-capitalised and is only able to offer a limited range of products. In a time like this, leasing can play a big role in reviving investments. Across many developed and developing economies globally, leasing of equipment and real assets is a prominent source of private capital formation and contributor to GDP. For some of the developed nations, the equipment leasing as a percentage of private capital formation is as high as 40%. In India, however, the leasing penetration is abysmally low at less than 5%.

Put simply, leasing splits ownership and user – ownership remains with the lessor, and use moves to the lessee. Leasing is based on the premise that profits are earned through the use of assets, rather than from their ownership.

Source: Financial Express