Srei BNP Paribas is one of the largest construction and mining equipment financiers in India. How would you like to define your journey?
It has been an exhilarating journey so far. From setting up operations in 2008 as a small player in the industry, we are now the largest construction and mining equipment financier in the country with a market share of 30 per cent. In the past 5 years alone, our Interest Earning Assets (IEAs) have grown at a CAGR of 15 per cent to Rs.8,348 crore as on March 31, 2015, while our PAT has grown at a CAGR of 12 per cent.
In fact, from starting as a mere construction and mining equipment financier, we have now differentiated ourselves as from the rest as a provider of integrated “asset solution” instead of being just the financier. We assist our clients across the life cycle of assets from procurement, deployment and maintenance to final disposal.
A report by India Brand Equity Foundation predicts that the construction equipment sector’s revenue is going to touch $22.7 billion by 2020, against $5.1 billion in 2011-12. Unit sales of construction equipment are expected to increase to 82,000 by 2016 from 61,745 in 2011-12. What are your strategies for the future growth?
Yes, we do believe that the industry is poised for growth. The current size of the equipment finance business is estimated to be close to Rs.18,000 crore. We expect the infrastructure equipment market to grow anywhere between 15-25 per cent in the next 3 years.
The opportunities are huge, and we aim to continue our market dominance and benefit the most out of the expected growth. Our experience has also taught us that it is essential to have a “balanced growth” between infra and non-infra lending. Recently, we have strategically diversified our footprints and forayed into new areas of equipment financing – IT, healthcare, farm and pre-owned. We have expanded into new verticals primarily to gain entry into new markets and diversify our portfolio risks. This has created several new borrowers and expanded the size of the market. In next 5 years, we see the share of these new verticals in our total portfolio increasing to 30 per cent, with pre-owned equipment financing business becoming the yield maximizer.
What are the key trends in the equipment finance market as per the end-user sector in India?
The last few years have been very challenging for the construction equipment industry. Slowdown in infrastructure spends on account of policy logjam, high interest regime and mining issues have affected the fortunes of this industry.
However, the current government has announced various reformative measures which have the potential to kick-start the much needed growth in the industry. The biggest beneficiary so far has been the road segment. The government has ambitious plans to develop 66,117 km of roads under different plans and set an objective of building 30 km of roads per day from 2016. Various policy initiatives like hybrid annuity model, refinancing scheme and 5-25 restructuring mode are all aimed at restarting the momentum in this sector.
Initiative to step up coal production is also in the right direction. While government is keen to involve private players by auctioning coal mines, the ideal way forward should be to retain ownership of mines with the government and then float tenders for undertaking contract mining by professional players from India and abroad as these players will expose this sector to state-of-the-art technology and modern mining management practices.
What are the key factors that are likely to drive and restrain this market over the short and long term?
The key factor that will be a catalyst for the growth over the near to medium term is the availability and ease of finance. The rising trend of stressed assets in the last 2 years has impeded the growth of finance to this segment, and today’s lenders are wary of financing this segment. The banking and NBFC segment is still burdened with the stressed asset of this sector.
NBFCs, especially the ones which specialize in deployment of infrastructure loans, have a big role to play in financing the increment growth in this segment. NBFC infrastructure finance companies are required to have a minimum of 75 per cent of their total assets deployed in infrastructure loans. Given their concentration on infrastructure, these specialised NBFCs have better due diligence and monitoring and structuring skills. This class, with its special provisions, can be a torchbearer for infrastructure financing.
Additionally, I feel that the latest draft guidelines that RBI has come up with for external commercial borrowings (ECBs) will provide stimulus to the much needed momentum in the industry. With ECB to be allowed for purchasing or financing domestically produced infrastructure equipment, purchasing of domestically produced used capital goods, providing loan finance and financing infrastructure SPVs, infrastructure finance will certainly get a shot in the arm. Since RBI is in the process of collecting industry feedback on these guidelines, I am sure the notification will come out soon.
Is there flavour of ‘tailor-made scheme for individual client’ in this line of business?
There is always a market for tailor-made schemes; however, adopting the same is dependent solely on the financier. We, at Srei BNPP, leverage upon our experience-based valuation methodology, our relationship-based approach and our in-depth understanding of customers’ business model to design structured solutions for our customers. We understand that every customer is different and believe in offering simple solutions to complex problems.
How do you deal with defaulters during the repossession process?
We assist our clients across the life cycle of assets from procurement, deployment, maintenance to final disposal. We understand the business model of the borrower and are aware of the cyclical and the seasonal factors which affect a customer’s business. We are also prepared to help the borrowers in times of distress.
However, as a process we try to minimize our portfolio risks by conducting periodic checks, various studies and periodic reports at regular intervals through our risk managers who help in identifying the early warning signals and enable us to take pre-emptive steps.
Additionally, to manage our repossessions related risks better, we have recently started deploying GPS devices. Such devices have already been deployed on equipment worth Rs.200 crore. By the end of this year, this number will increase substantially. This allows us to manage our assets efficiently and evaluate credit risks wisely.
Srei BNP Paribas is one of the major sponsors of EXCON 2015. What is the dynamics and impact of EXCON on the Indian construction equipment industry in India?
EXCON is one of the largest construction equipment exhibitions in Asia and the largest event for construction equipment in South-East Asia. The exhibition will showcase a wide variety of equipment, technology and products with specific emphasis on efficiency, productivity, environment and safety. It is a great platform for manufacturers to showcase their technology and launch new products. Its impact can be judged by the fact that the last edition (EXCON 2013) saw 243 product launches from exhibitors from 20 countries and resulted in Rs.600 crore of business enquiries generated.
What are your expectations from the upcoming EXCON?
EXCON 2015 is expected to be the biggest in terms of sheer size and magnitude, and we are expecting a lot of innovative product launches from our manufacturer partners. The industry needs a transformative change and hopefully the coming together of different stakeholders at the event will bring about the same.
Like always Srei BNPP will have a big presence at the exhibition. We have tied up with more than 20 reputed global equipment manufacturers and are coming up with a lot of exciting schemes for our customers at the event. We are organising a unique auction of rentals called “Paison Ki Nilami” where we will lease out select equipment to our customers at monthly rentals which will be decided by bidding. This innovative offering is probably the first in the industry. We will also be offering a loyalty programme called “Asset Power” along with some of our global manufacturer partners where we give our preferred customers special offers on the rate of interest and higher loan to value. We will also offer a select group of our existing customers pre-approved limits under a scheme called “SREI Money Power” which they can use to buy equipment from any of our manufacturer partners we have tied-up with.
We are also organising a get together called “Milap” with all our manufacturer partners on the eve of the inaugural day, i.e. 24th November. Milap celebrates the spirit of partnership and acknowledges the support and contribution of our manufacturer partners in our growth.
This year we expect more than 3,000 unique visitors at our outdoor stall at the event, modelled on the smart city theme. EXCON has always been important to us in terms of new business as well business enquiries generated. This year we expect to do business of more than Rs.500 crore during the event.