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Sundaram Finance Ltd, the leading
Chennai-based non-banking finance
company, plans to emerge as a formidable
player in India's construction equipment
financing segment and target nearly 3 per
cent market share. This is significant considering
that private players currently hold only
30 per cent share in the country's Rs 1-lakh
crore equipment financing industry. The
Sundaram Finance Group's activities span
car and commercial vehicle finance, insurance,
software solutions, business process
outsourcing, tyre finance, fleet cards, and
logistics services.
Disclosing these plans, V. Shaktivel, Product
Manager - Equipment Finance, Sundaram
Finance Ltd, told Projectmonitor that
the equipment financing sector was estimated
to grow at an annual rate of 10 to 15 per
cent for the next five to six years. He said that
this would be possible only through a revolution
in infrastructure development duly
supported by equipment finance. The main
demand drivers for equipment finance
would be roads and bridges, power, mining,
ports, airports and railways, he noted.
"The market is big enough to accommodate
as many players owing to current
developments. The end-users will have the
freedom to choose from a variety of equipment
financiers. In its current state, the
sector can be compared to that of the Indian
automobile industry in the late 1990s,"
Shaktivel pointed out.
The equipment financing industry was
currently dominated by public sector
banks and government agencies with a
market share of nearly 70 per cent, but this
would change in favour of private players,
he stated.
On the equipment finance models in India,
Shaktivel said that the 'hire-purchase' model
was a deemed sale wherein the registered
owner claimed depreciation and interest
portion as expenses. The ownership transfer
is on receipt of option in monetary form. In a
'lease contract' the transfer of asset is done
on receipt of residual value i.e. at the termination
of lease term. While most individual
customers prefer hire purchase to other
modes of financing, lease contract is preferred
by a few corporates to claim the entire
amount repayable as expense.
"Infrastructure finance will be the nerve
centre of India's economic development in
the days to come. Moreover, equipment
finance is capital intensive. To minimise the
deployment of one's own funds, entrepreneurs
prefer to avail of finance. The cost of
the assets is also exorbitant, hence equipment
finance is a must for any sale transaction,"
Shaktivel added.
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