Recently, Tata Capital through its wholly owned subsidiary Tata Capital Financial Services Ltd entered into a Business Partnership Agreement with Century Tokyo Leasing Corporation of Japan for offering equipment leasing services in India. Tokyo Leasing Corporation is part of leading financial services company of Japan - Mizuho Financial Group. The leasing solutions will be offered through a leasing division in Tata Capital Financial Services -- Tata Capital Leasing Solutions. Under the agreement, the leasing division proposes to launch Japan Desk to source business from Japanese companies based in India. Tata Capital MD and CEO Praveen P Kadle and Century Tokyo Leasing Corporation President and CEO Shunichi Asada tell Dilasha Seth and Indivjal Dhasmana about various aspects of the equipment leasing business opportunities in India. Edited excerpts:
What is this whole agreement about? Are you signing an agreement for leasing equipment for the infrastructure sector? Kadle: Not only infrastructure, but also in areas of banking, power, general, telecom, medical equipment etc. In banking, what could be the equipment that you will lease? Kadle: ATMs would be a major part. Does it mean you will give ATMs to banks on a fee? Kadle: Fee on per transaction basis. RBI recently announced this programme for ATMs. Now, when banks have realised that ATMs can help them generate a lot of business both in terms of generating deposits and providing disbursment services, banks make huge investments in ATMs. But, they would not like to block their money in ATMs. Today, most banks want to conserve their capital. Whatever equipment they can buy on lease, they will buy. Leasing also takes advantage of technology obsolescene, whether it is ATMs or IT products. How is it so? Kadle: For example, you are supposed to have a kind of ATM where I am ready to pay certain fee on transaction. I am not interested in replacing it every three years, I was paying Rs x as per transaction.
If technology changes, I need not be worried about it. How big is equipment leasing market in India and what are the prospects like? Kadle: We are looking at an equipment leasing market, which is Rs 20,000 crore currently. It is very small compared to many other countries, where leasing accounts for 20% of capital formation. In India, it is only 1.5%. Leasing started in mid 1970s and mostly small players went into leasing business. Large industrial houses and big organized players did not go into leasing. So, initially there was mushrooming of growth and subsequently small players got eliminated as industry consolidated. Today, you will find hardly two or three players left in the leasing business. Agreement is that Tata and the Japanese firm have proposed a leasing business. And they will cater to Indian businesses, which may or may not include Japanese companies in India. Then why is the Japan desk there? Asada: Around 1,000 Japanese companies have already entered into Indian markets. The number of Japanese companies is going to double in two to three years time. Given that, we will be having an extensive relationship with Japanese companies and that will generate business for Tata. Will you be leasing equipment for Auto companies as well? Asada: At this point of time, we are not targetting auto companies, but we will follow many areas and auto leasing would also be one of them. How does Tata benefit from the Japanese firm in terms of leasing business? Kadle: We get skills in terms of determining residual value of asset when lease term comes to an end and also in terms of risk assessment, rate assessment and how to structure products. They have been in business for 50 years and present in many parts of the world. What is your market share in Japan in leasing business? Asada: It is 12-13% and we are the largest player.