Differentiation in NBFC and bank regulations on income recognition on NPA assets, risk weightage on assets, TDS on repayments, all are some of the major challenges, says Pratap Paode, Chief Executive Officer, Shriram Equipment Finance Company. In an exclusive chat with Equipment India, Paode highlights the recovery of the market and some of the challenges faced by the CE financing industry. Excerpts from the interview.

How has the vibrancy in the CE market been reflected in the financing segment?
As finance volumes and performance of portfolio is a direct function of industry growth and opportunities for asset deployment, the outlook is positive. We at Shriram are optimistic of the fact that the construction equipment industry will be able to maintain a healthy growth rate of 15 per cent YoY for next five years at least. This does corroborate with infrastructure investment plan in XIIth plan i.e., 2012-2017. Our approach to the market with a focus of retaining customer will support the growth numbers that the industry is expecting.

What is the performance of the last two quarters and how does SEFC look at ending this fiscal?
We at Shriram Equipment Finance commenced our operations in October 2010 and have already gained momentum on volumes. While we cannot divulge the numbers that we have planned for this and next few years, I confirm that we will be one of the biggest retail construction equipment financier very soon.

Which are the major verticals SEFC expects more business from?
While we are more focussed on the retail segment of customers i.e, first-time buyers, small customers, we are equally equipped and are catering to mid and large- size customer segment as well. Therefore, the portfolio as of now and in future too, will be well balanced on the customer mix. It is also expected to be equally balanced on segments viz., plant hirers, mine owners/operators, contractors and general civil contractors.

Is there a move towards more affordable financing systems?
Interest cost is usually not more than 5-6 per cent of the total expenses of any contractor. Therefore, when we talk of affordable financing, it really doesn?t have too much bearing on profitability growth of any borrower. What is more important is ease of financing and accessibility. We at Shriram offer customer inclusion on size and geography to which they belong and also on asset side by making available finance for all asset types and classes.

To what extent has SEFC tailor-made the financing packages to end up with minimum NPAs?
It will be unfair to make a statement that NPAs primarily come from small and mid-sized customers. Most finance companies have witnessed NPAs coming from large- size customers also, either due to operational issues or over leveraged position. While it is true that the endurance capacity of the small customer who works on wafer thin working capital is low as is his cash- in- hand position, the risk from the lenders perspective is granular and distributed. We do have products wherein we can take care of short- term or incidental cash requirements of the customer who then can continue to operate with financial discipline even in case of payment or contract adversities.

As the competition is getting tougher, how you do differentiate your product offerings from the rest of the players?
Competition is eminent in any mature business / industry and the products offered become commodity very soon. However, in CE financing, each financier has identified and created a niche for themselves and large operate within those boundaries. We too, have identified such a niche in the retail segment owing to our existing distribution network that will give us sustained profitable growth.

What are the major challenges and your plans to iron those glitches out?
The challenges faced by the CE finance industry are many, and to state a few:

• Differentiation in NBFC and bank regulations on income recognition on NPA assets, risk weightage on assets, TDS on repayments, etc.
• High capital adequacy requirement of 15 per cent.
• No access to low cost borrowing and categorisation of infrastructure finance.
• Stringent norms and regulations on repossession for intentional defa?ulters also. Absence of DRT and SARFAESI Act.
  

As the expectations from industry are high and heavy investments in infrastruc?ture by the government, it is time that the above issues see resolution by the regulators that would pave path for unobstructed growth for the industry.

What is the size of the market and the growth expected?
This fiscal year the market size on standard CE assets will be around Rs 18,000 crore and the growth expected over next five years should average at around 15-20 per cent YoY.