"Tata Capital Limited,is a subsidiary of Tata Sons Limited, undertaking fund and fee based activities in the financial services sector. The Company caters to the needs of the retail and institutional customers via its wide range of offerings; truly a one- stop shop for finance and investment options. The Infrastructure Finance division of Tata Capital caters to the needs of the infrastructure sector. We have MoUs (Memorandum of Understanding) with over 35 leading construction equipment manufacturers which provides us with a unique advantage and allow us to leverage the same to provide attractive finance options to our customers," says Mr. Ranjit Manjarekar, Head Infrastructure Finance, Tata Capital, in an interview with S.A.Faridi.
With the planned investment of $1 trillion in the next 5 year plan 2012-17, how do you see the construction equipment market growing in the coming years?
As Dr. Manmohan Singh, the Prime Minister of India, recently stated “In the next 10 years, we must invest at least US$ 350 billion to modernize and expand India’s infrastructure" and the same sentiment is reflected in the 12th 5 - year plan. The 12th 5-Year Plan which envisages the investment in infrastructure to be between 8-10% of GDP, with the share of private investment rising from 36% (as forecast in the 11th plan) to 50% (as forecast in 12th plan). This private investment, to the tune of USD 275 billion, is a debt opportunity estimated to give a CAGR of 21% to the loan books of Banks & NBFCs.
What is the market size of the equipment finance industry in India and how do you see it evolving in the next few years?
The Construction Equipment Finance industry has a market size close to Rs. 27,000 crore and is expected to grow at a rate a of 15-20% over the next 5 years.
Could you please brief us about Tata Capital Limited and its infrastructure and equipment financial services?
Tata Capital Limited, a subsidiary of Tata Sons Limited, is registered as a Systematically Important Non Banking Finance Company, undertaking fund and fee based activities in the financial services sector. The Company caters to the needs of the retail and institutional customers via its wide range of offerings; truly a one- stop shop for finance and investment options.
The Infrastructure Finance division of Tata Capital caters to the needs of the infrastructure sector. Under the division, we finance a range of construction equipment from excavators, loaders, backhoes, wheel loaders and motor graders, to material handling equipment such as cranes , reach stackers and small and large crushers. Besides these, we also finance road construction equipment such as vibratory compactors, pavers, HMP, etc.
We also provide project funding for roadwork, irrigation, mining, airports, power, logistics, windmills, telecom towers and new crushing or RMC units. We also offer equipment on a monthly rental basis; wherein the equipment is owned, operated and maintained by Tata Capital, freeing our customers from the day-to-day operational worries.
As a large chunk of customers are small and medium size contractors and they are quite price conscious and value focused; what financing schemes are available for such customers?
We have MoUs (Memorandum of Understanding) with over 35 leading construction equipment manufacturers which provides us with a unique advantage and allow us to leverage the same to provide attractive finance options to our customers. Our wide experience and deep understanding of our customers also allows us to offer special schemes such as free insurance, payment of only the interest amount etc, during the seasons when machines are not optimally used (e.g. monsoons), to ease the impact on their finances.
What are the risks involved with equipment financing business?
- As majority of the projects are short term in nature, dependent on the government’s spend on infrastructure,multiple clearances etc, this business faces the risk of irregular cash flows.
- Non-registration of equipment by customers
- Tendency toward improper maintenance or lack of AMCs with manufacturers, leading to ill use of equipment
- Cross-state movements and difficulties in tracking equipments
- No organised player to take care of old or repossessed equipments
NBFCs are able to provide certain benefits to the customers – such as larger reach, value added services, extensive after sales support and structured and customized product offerings, which makes them popular with the customers. With RBI’s decision to launch Infrastructure NBFCs, these NBFCs will be able to compete on a better footing. We are optimistic about government support to the NBFCs operating in the infrastructure sector.
India has extremely complex tax system. What Government supports and policy implemen- tation are needed for the growth of equipment finance industry?
A key enabler for the growth of equipment finance industry in India would be its recognition as a priority sector. In addition to this, some of the areas that will bolster growth are transparency in project allotment, execution support, faster turnaround time and budgetary support for long term projects. Support on these fronts will enable the construction equipment finance industry to form a significant part of the Infrastructure arena.