GST boost: Srei looks to give new lease of life to its leasing business

With goods and services tax (GST) resulting in a reduction in tax on leasing, Srei Equipment Finance, a wholly-owned subsidiary of Srei Infrastructure Finance, is looking to give a new lease of life its leasing business. 

The company is targeting the wagons’ business from the Railways, which recently announced that it will procure a record number of wagons. 

Over the last few years, Srei’s leasing business had come to a near standstill on account of multiple taxes, adding up to a high of 33 per cent. Now, with the GST in place, the tax rates on leasing has come down to 18 per cent, which has made the business viable, according to Sunil Kanoria, vice-chairman, Srei Infrastructure Finance. 

Srei Infrastructure Finance’s Consolidated assets under management stood around Rs 470 billion at the end of March 31, 2018. Of this, the share of Srei Equipment Finance is close to Rs 300 billion. “Today, we are educating our customers. Currently, none of the NBFCs are into leasing. At Srei, we have always differentiated ourselves from the rest by offering unique products and services that benefited our customers. We have been a pioneer, turning several first-of-its-kind business ideas into reality. We are optimistic on the leasing business where we now have a portfolio of approximately Rs 50 billion in just one year. I expect the share of leasing in our portfolio to increase from 15 per cent now to around 40 per cent in the next two years.

Apart from the Railways, Srei is targeting sectors like infrastructure, construction, mining, medical equipment and IT for its leasing business.  The company is in talks with manufacturers like Bombardier and BHEL for making them leasing partners. “We are now discussing with Bombardier and a couple of others to lease out coaches to Metros,” said Kanoria.

The Railways is set to procure around 100,000 wagons worth Rs 200-250 billion in the next five years, according to a statement by railways minister Piyush Goyal. This is one of the biggest orders of the Railways in the recent past. Apart from this, Srei will also explore options for leasing in the aviation space, although the tax regime at present is still not favourable, according to Kanoria. 

In the aviation space, almost 90 per cent of aircraft are leased, but almost all from a foreign partner. 

“Taxation issues have to be sorted out before we start leasing aircraft again. It is different from railways. Aircraft are generally manufactured overseas, while railway coaches are manufactured in India,” said Kanoria.

In the early 2000s, first interest tax was imposed on leasing, though it was rolled back later. However, subsequently VAT was introduced and states classified leasing as a "sale" and imposed VAT at the rate of 12-15 per cent. However, the Centre classified leasing as a "service" and charged service tax. Hence, the effective rates in leasing came to around 33-34 per cent, according to Kanoria.

In November 2017, Srei Equipment Finance had filed draft papers with Sebi to float an initial public offering (IPO). The company is awaiting approvals before hitting the market. The IPO comprises fresh issue of equity shares worth Rs 11 billion. Besides, Srei Infrastructure Finance will sell up to 43,86,765 shares.