NBFCs March Ahead [Jan 2012]

Equipment Financing is one of the most important tools in building infrastructure. Gradually, the CE finance sector in India has started maturing. Subhajit Roy speaks to the prominent CE finance players and brings you their views on the market status, approach and risks involved in the business
NBFCs score high over Banks The scenario for the past 15 years shows that NBFCs have grown significantly from financing into infrastructure to construction equipment to commercial vehicles. Owing to the fast reach and distribution, the NBFC segment has seen a faster growth in comparison to localised or nationalised banks who do not take a vertical approach.     
Talking about the differentiation between NBFCs and banks, Pratap Paode, CEO, Shriram Equipment Finance said, “NBFCs generally take a vertical approach. They will have separate teams to handle the verticals like commercial vehicle and construction equipment financing segments. This approach in a particular vertical gives NBFC mileage in terms of processing the deal faster than the bank and taking risk which probably could be higher and more disburse than that of a bank. NBFC do not have area restriction which means that it can fund beyond the geographical limits of any branch unlike the banks. If NBFC has a collective mechanism, they can travel up to several kilometres to cater to any of the villages that the bank cannot do. This is one of the major differences between the bank and NBFC which allows the latter to cover a larger segment faster that is how business towards NBFCs have grown”.
Ashutosh Shukla, COO, Magma Fincorp shares his viewpoint, “NBFCs are far more superior to the PSU banks. It’s the response time that matters. More specifically, in the tier 2 and tier 3 cities we are more intent and able to service the customers better than the PSU banks”. He further adds, “PSU Banks are not active in construction equipment finance. They are mainly into one or two backhoe loaders otherwise it’s the NBFCs or the few private bankers”.
NBFCs approach towards the industry Shriram Equipment Finance takes a bottom line approach in the industry that is client driven. For the company, disbursements are important to have a presence in the market at least within the top three financial solutions. “At the same time we want to be the most profitable NBFC in this country. So far, our returns on asset and on equity are the best in this industry; we will continue to maintain that. Also we intend to increase the top-line which will also increase the market share and our position in the market”, adds Mr. Paode. 
Srei BNP Paribas adopts a friendly approach towards the industry. Partnerships with the customers – is their key strategy. “Our approach is partnering with the customers. Our’s, not merely a money lending business, it’s more of partnering with the customers. So we work with them as a partner in good and bad times. Our focus is on nurturing the relationships irrespective of first time user who wants equipment for the first time or the existing customer who needs equipment to meet high work order” said DK Vyas, CEO, Srei BNP Paribas.
Liquidity – Not an issueShriram Equipment Finance is a subsidiary of Shriram Transport Finance Limited that brings in capital into the company. Mr. Paode explains, “Owing to an excellent network, there is no dearth of capital per say, the capital infusion will continue to happen. We are not looking at outsider putting capital here in the form of capital investors. However, we will have our own capital for the time being. When required, we will look at other options”. Almost echoing the same comments, Mr. Shukla of Magma Fincorp said, “We have banks that are funding us. As an organisation, we have been credited by all our manufacturers. Even during the recession, funding was continued. Therefore funding has never been an issue for us. Also our portfolio quality has always allowed us to continue our funding”.
Lesser or No Risk Involved Banks follow a customer level approach while financing. If the customer banking is good which means if its average credits and balance maintained is good, then they will take an exposure on that customer. At the same time, since the banks are not into a vertical approach of the industry, they are not able to assess the project related risks. The branch manager may not be able to assess the risk associated with the project which may not necessarily belong to the location. Elaborating on the risk involved, Mr. Paode reiterated, “In case of Banks, to assess the risk, there is a lesser bandwidth whereas in a NBFC, we are aware of the ongoing projects. We do the assessment of the projects as well as assets. Also, as far as the resale and realisation of prices are concerned, we have a huge network of distribution channels. So, the realisations of NBFCs are far better than that of banks because the Banks do not have that kind of distribution network”.
The ‘slowdown’ impactThe industry is going through a difficult phase owing to the economic slowdown. Some of the manufacturers are definitely finding it difficult because of the pricing especially in Yen and others. However there is enough demand in the market for the equipment whereas other manufacturers are coming up with innovative technologies to enhance overall efficiency. A few companies have introduced the excavator where the owner of the machine can locate its position and keep a track of its task and performance. Such factors will enhance the interface between man and machine.

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