iCEMA Conclave Discusses Measures to Make Finance Support More Viable
The 2nd Edition of iCEMA Conclave organized by Indian Construction Equipment Manufacturers Association, deliberated on new avenues of construction equipment financing, challenges and measures. NBM&CW reports.
The iCEMA Conclave, which took place in Delhi, saw a large gathering of financiers, equipment manufacturers, contractors and financial consultants. The theme was on making equipment finance more conducive for buyers. Participants discussed ways to make equipment leasing business grow as it has remained low despite strong demand fundamentals. Discussions were also held on making equipment more technology oriented to ensure higher availability and reduce downtime and operating cost.
The conclave was inaugurated by R K Pandey, Member (Projects), National Highway Authority of India. In his inaugural address, Mr. Pandey said, “The Government has drawn an ambitious, 65,000 km ambitious national roadways project under the Bharatmala program. The DPR for 40,000 kms is underway, while 12,000 kms have already been completed. The tendering process for additional 4,500 kms is underway. NHAI, to bring down cost of construction has always been promoting mechanization in construction. New design methodologies have also led to lower cost of construction, for instance, the New Delhi-Mumbai corridor will be 200 kms shorter in alignment. NHAI is also working out finance options like TOT. To ensure that projects do not get stalled, NHAI is only awarding the projects when about 90 percent of land has been acquired. Close to `70,000 crore worth of projects has been blocked in the highway sector and the conciliation committee set up by NHAI has been able to resolve 22 cases.”
Ajit Pai, OSD and Head, Economics & Finance, Niti Ayog attended the programme as Guest of Honour. He said, “With new measures, following the IILFS and India Bulls crisis, the Government has been able to contain non-performing assets of banks. Measures like lowering cost of capital and some government policies have ensured that bank credit to NBFCs is robust. NBFCs should now tap the bond market and not be depended on banks for their finance offtake.”
Sudhir. P. Amembal, Chairman & CEO, Amembal & Halladay, a global equipment leasing consulting firm, said, “OEMs globally, including in India, have not fully reaped the benefits of leasing. Though leasing has made rapid strides in US, Europe and even in China, it has not picked up in India as it should, given the strong demand. Leasing facilitates demand, even when the market is bearish. Leasing perpetuates sustained percolation of advanced technologies, which enables the market to come up with more advanced products. While there are certain grey areas in financing of leased equipment, the issues can be worked out with the stakeholders. One way to promote leasing in India could be by forming leasing associations.”
Vinod Kothari, Director, Vinod Kothari Consultants, said, “The government should come up with new securitization rules for selling loans. While construction equipment finance is an important business for NBFCs, given the cycle of growth and slump in the equipment industry, NBFCs should make their services more value added by providing asset-based solutions to the equipment buyers. This could include maintenance and operation contracts as per the due diligence. They could also work out a formula where the EMIs could be linked to utilization of the equipment.”
In his welcome address, Arvind.K Garg, Past President, iCEMA & Executive Vice President and Head, Construction and Mining Equipments Business L&T, said, “There are indications that the slump in demand for equipment is bottoming out and is bringing some optimism in the industry. However, there should be a finance mechanism in place to tide over the lean periods when buyers have a restricted cash flow to buy new equipment.”
Sharing his views on making equipment financing profitable for banks and financial institutions, Sarosh America, Chief Operating Officer- Commercial Finance, Tata Capital Financial Services, said, “While the floating rate of interest is linked to all kinds of finance, even for property transactions, it is not linked to equipment finance. Floating rates will make it beneficial for both non-banking finance companies and for equipment buyers, especially when the interest rates are soft. Increased digitization of loan transactions will lead to better planning and monitoring.”
Jaswinder Singh Bakshi,Convenor, Finance Panel, ICEMA, in his concluding remarks, spoke about the importance of financing and leasing of equipment in the present scenario of massive infrastructure development and requirement of various categories of construction equipment in key infrastructure projects in the country.
Raman Agarwal, Co Chairman, Finance Industry Development Council, concurred, “Dependence of NBFCs on the banking sector needs to be reduced, while equipment leasing agencies or the OEMs need to have greater collaborations with the banking sector.”
Proactive Financial Support Sought for Equipment & Parts
Panelist Vikram Sharma, Advisor, Kobelco Construction Equipments, said, “There should be specialized rental agencies which can purchase the machines and deploy them at cost effective terms with the end-users. To make operations profitable without large capital investments, the agencies could operate and maintain the machines, and even re-deploy them.”
Ranjit Manjarekar, Vice President & Head, Asset Management, Tata Projects, said, “While there should be a focus on low cost of finance, availability of finance by the banks and NBFCs should be linked to the actual site and project requirements and as per the cycle of the construction. Leasing of machines should also work on actual deployment considerations. Artificial intelligence can ensure higher availability of machines and thereby faster completion of projects. While there has been a good deal of work done by the OEMs, the process can be strengthened further.”
TR Bharatan, Co-Convenor, Industry Government Interface Panel, ICEMA & Chief Advisor, Puzzolana Group, said, “Spare parts funding is very crucial across the life cycle of an equipment to ensure its availability. Restructuring is done usually to cover up the NPA by banks and NBFCs. In this, the interest of the customer gets sidelined. Leasing of equipment should be done only as a back-up support and only during the peak of construction; it should not be an absolute strategy by the OEMs or the equipment rental agencies.”
Sustained Disruptions Needed
Speaking at a panel discussion on disruptions in finance for equipment and equipment utilization, Amit Dang, President & Business head, Srei Equipment, Finance ltd, said, “Sustained innovation in equipment finance and support is the cornerstone for disruption as there are various dynamics involved. There should be a dedicated platform for equipment availability.”
Vivek Haleja, Convenor Industry Government Interface Panel ICEMA Head & General Manager, CE, Business Larsen & Toubro, said, “Doing things differently both in terms of equipment placement and particularly equipment support, and thereby bringing more value to customers, is disruption. L&T has been emphasizing advanced digitization, enabling the operator and owner to collate performance inputs of the machine so as to facilitate predictive and preventive maintenance. This will also help finance companies and the end-user to sell the machine and get a better resale value.”
Manish Handa, Business Head, Earthmoving Equipments Division, Action Construction Equipments, concurred, “Disruptions have to be sustainable in nature for construction equipment. The Indian Construction Equipment Industry is gearing up for the new emission norms. The strategy at ACE has always been to create advanced, reliable and performance driven products to gain a competitive edge.”
The speakers concluded that the OEMs, based on their manufacturing expertise, will have to justify the lifecycle of the machines. Since, finance plays a major role on the life of the assets, it could be used more as a collaborative tool between the NBFCs, banking companies and the leasing agencies so that the machines can generate the desired cash flow for the end-user.
Distinguished speakers / panelists from industry, financiers, leasing companies, consultants took part in the panel discussions at the Sessions on Equipment Leasing in India & Global Best Practices and Disruptive Innovations in CE Financing.
The iCEMA Conclave, which took place in Delhi, saw a large gathering of financiers, equipment manufacturers, contractors and financial consultants. The theme was on making equipment finance more conducive for buyers. Participants discussed ways to make equipment leasing business grow as it has remained low despite strong demand fundamentals. Discussions were also held on making equipment more technology oriented to ensure higher availability and reduce downtime and operating cost.
The conclave was inaugurated by R K Pandey, Member (Projects), National Highway Authority of India. In his inaugural address, Mr. Pandey said, “The Government has drawn an ambitious, 65,000 km ambitious national roadways project under the Bharatmala program. The DPR for 40,000 kms is underway, while 12,000 kms have already been completed. The tendering process for additional 4,500 kms is underway. NHAI, to bring down cost of construction has always been promoting mechanization in construction. New design methodologies have also led to lower cost of construction, for instance, the New Delhi-Mumbai corridor will be 200 kms shorter in alignment. NHAI is also working out finance options like TOT. To ensure that projects do not get stalled, NHAI is only awarding the projects when about 90 percent of land has been acquired. Close to `70,000 crore worth of projects has been blocked in the highway sector and the conciliation committee set up by NHAI has been able to resolve 22 cases.”
Ajit Pai, OSD and Head, Economics & Finance, Niti Ayog attended the programme as Guest of Honour. He said, “With new measures, following the IILFS and India Bulls crisis, the Government has been able to contain non-performing assets of banks. Measures like lowering cost of capital and some government policies have ensured that bank credit to NBFCs is robust. NBFCs should now tap the bond market and not be depended on banks for their finance offtake.”
Sudhir. P. Amembal, Chairman & CEO, Amembal & Halladay, a global equipment leasing consulting firm, said, “OEMs globally, including in India, have not fully reaped the benefits of leasing. Though leasing has made rapid strides in US, Europe and even in China, it has not picked up in India as it should, given the strong demand. Leasing facilitates demand, even when the market is bearish. Leasing perpetuates sustained percolation of advanced technologies, which enables the market to come up with more advanced products. While there are certain grey areas in financing of leased equipment, the issues can be worked out with the stakeholders. One way to promote leasing in India could be by forming leasing associations.”
Vinod Kothari, Director, Vinod Kothari Consultants, said, “The government should come up with new securitization rules for selling loans. While construction equipment finance is an important business for NBFCs, given the cycle of growth and slump in the equipment industry, NBFCs should make their services more value added by providing asset-based solutions to the equipment buyers. This could include maintenance and operation contracts as per the due diligence. They could also work out a formula where the EMIs could be linked to utilization of the equipment.”
In his welcome address, Arvind.K Garg, Past President, iCEMA & Executive Vice President and Head, Construction and Mining Equipments Business L&T, said, “There are indications that the slump in demand for equipment is bottoming out and is bringing some optimism in the industry. However, there should be a finance mechanism in place to tide over the lean periods when buyers have a restricted cash flow to buy new equipment.”
Sharing his views on making equipment financing profitable for banks and financial institutions, Sarosh America, Chief Operating Officer- Commercial Finance, Tata Capital Financial Services, said, “While the floating rate of interest is linked to all kinds of finance, even for property transactions, it is not linked to equipment finance. Floating rates will make it beneficial for both non-banking finance companies and for equipment buyers, especially when the interest rates are soft. Increased digitization of loan transactions will lead to better planning and monitoring.”
Jaswinder Singh Bakshi,Convenor, Finance Panel, ICEMA, in his concluding remarks, spoke about the importance of financing and leasing of equipment in the present scenario of massive infrastructure development and requirement of various categories of construction equipment in key infrastructure projects in the country.
Raman Agarwal, Co Chairman, Finance Industry Development Council, concurred, “Dependence of NBFCs on the banking sector needs to be reduced, while equipment leasing agencies or the OEMs need to have greater collaborations with the banking sector.”
Proactive Financial Support Sought for Equipment & Parts
Panelist Vikram Sharma, Advisor, Kobelco Construction Equipments, said, “There should be specialized rental agencies which can purchase the machines and deploy them at cost effective terms with the end-users. To make operations profitable without large capital investments, the agencies could operate and maintain the machines, and even re-deploy them.”
Ranjit Manjarekar, Vice President & Head, Asset Management, Tata Projects, said, “While there should be a focus on low cost of finance, availability of finance by the banks and NBFCs should be linked to the actual site and project requirements and as per the cycle of the construction. Leasing of machines should also work on actual deployment considerations. Artificial intelligence can ensure higher availability of machines and thereby faster completion of projects. While there has been a good deal of work done by the OEMs, the process can be strengthened further.”
TR Bharatan, Co-Convenor, Industry Government Interface Panel, ICEMA & Chief Advisor, Puzzolana Group, said, “Spare parts funding is very crucial across the life cycle of an equipment to ensure its availability. Restructuring is done usually to cover up the NPA by banks and NBFCs. In this, the interest of the customer gets sidelined. Leasing of equipment should be done only as a back-up support and only during the peak of construction; it should not be an absolute strategy by the OEMs or the equipment rental agencies.”
Sustained Disruptions Needed
Speaking at a panel discussion on disruptions in finance for equipment and equipment utilization, Amit Dang, President & Business head, Srei Equipment, Finance ltd, said, “Sustained innovation in equipment finance and support is the cornerstone for disruption as there are various dynamics involved. There should be a dedicated platform for equipment availability.”
Vivek Haleja, Convenor Industry Government Interface Panel ICEMA Head & General Manager, CE, Business Larsen & Toubro, said, “Doing things differently both in terms of equipment placement and particularly equipment support, and thereby bringing more value to customers, is disruption. L&T has been emphasizing advanced digitization, enabling the operator and owner to collate performance inputs of the machine so as to facilitate predictive and preventive maintenance. This will also help finance companies and the end-user to sell the machine and get a better resale value.”
Manish Handa, Business Head, Earthmoving Equipments Division, Action Construction Equipments, concurred, “Disruptions have to be sustainable in nature for construction equipment. The Indian Construction Equipment Industry is gearing up for the new emission norms. The strategy at ACE has always been to create advanced, reliable and performance driven products to gain a competitive edge.”
The speakers concluded that the OEMs, based on their manufacturing expertise, will have to justify the lifecycle of the machines. Since, finance plays a major role on the life of the assets, it could be used more as a collaborative tool between the NBFCs, banking companies and the leasing agencies so that the machines can generate the desired cash flow for the end-user.
Distinguished speakers / panelists from industry, financiers, leasing companies, consultants took part in the panel discussions at the Sessions on Equipment Leasing in India & Global Best Practices and Disruptive Innovations in CE Financing.
NBM&CW March 2020
