Leasing in India has been in existence for decades now and has seen its fortunes trough and peak. From the days when the leasing industry surged overnight to when it died out completely – and then revived from the ashes, the leasing industry in India has had its own story to tell.
The Indian leasing industry was at its peak in the 1980 and 1990s before tax issues throttled leasing volumes.
Negative issues ranging from the incremental tax burden on sale of leased goods, tax scams emerging, and regulatory challenges, all led to leasing falling out of favor with the tax authorities.
However, leasing started to revive in India post 2010.
In recent times, leasing has received recognition following the introduction of value added taxes in India and there has been considerable traction by way of new players entering the market.
The Indian tax authorities continue to view lease with some apprehension and judicial pronouncements still pose challenges for the industry on occasions.
To address the current issues, the industry felt the need to create a leasing association with the aim of promoting the cause of leasing in India.
Factoring & receivables financing
Apart from leasing - factoring and receivables financing in India have both been in dire need of recognition and support.
The regulators have been seeking to promote factoring in India and have created a facilitating-regulatory environment to enable factoring to develop in India. This has assisted micro- small- and medium-enterprises (MSMEs) to obtain alternative modes of financing apart from conventional banking channels.
The Factoring Act was passed in 2012 and the Royal Bank of India carved out a separate class of non-banking financial companies (NBFCs) called NBFC-Factors to promote and develop factoring in India, however, in practice, there has been very little that has materialized.
The new Asset Finance Association of India
Considering the present state of leasing, factoring, receivables financing and other asset backed financing industry in India, Vinod Kothari Consultants along with a few other industry stalwarts took the initiative for formulating the Asset Finance Association of India (AFAI).
AFAI is a flagship initiative by the Indian Securitisation Foundation (ISF), a not-for-profit organization incorporated under section 25 of the Companies Act, 1956, which is a representative body of the securitisation industry in India.
AFAI has been constituted with the aim of bringing together the stakeholders of the asset finance sector in India.
Simi Thapar, head equipment leasing and financing solutions, corporate finance, Tata Capital Financial Services Limited said: “The formation of AFAI enables a platform for non-banks, captives, OEMs and service providers to work cohesively for the development of key asset finance products like factoring and leasing.
“These products can contribute significantly to capital and operating expenditure management and have a direct bearing on the respective business as well as economic growth.
“Given the growth and new dimension of asset finance in recent years, such a forum is much needed, the voice of AFAI could do to the Indian business what ELFA, Leaseurope have done to the equipment business in US and Europe.”
The inaugural meeting of AFAI was held on 27 May 2016 and the meeting was well attended by the industry players who remained enthused and dedicated to the cause of promoting leasing in India. The meeting witnessed a great turn out and the effort and intent was much appreciated.
Greet Kraak, director, DLL group added: “The first meeting of AFAI was a great success. Participants discussed and developed a common vision and strategy towards putting leasing and factoring in a better light in India. This will be a long journey for all, but all journeys start with a first step, and therefore it is very important that the AFAI made its first step on Friday.”
The attendees included Tata Capital Financial Services Limited, DLL, GE, Orix Auto Infrastructure Services Limited, Tranzlease, Rent Alpha, Dell, Rentomojo, and Connect Residuary Private Limited. Also, the organisations providing consultancy services such as KPMG and Vinod Kothari Consultants were part of the meeting.
The executive committee of AFAI included:
Simi Thapar, head equipment leasing and financing solutions, corporate finance, Tata Capital Financial Services;
Gautam Munish, regional sales director, Hewlett Packard Financial Services;
Sunil Badala, partner, BSR & Co;
Shrirang Tambe, founder & CEO, Origa Renting;
Nidhi Bothra, director, Indian Securitisation Foundation;
Dipankar Sen, executive vice president & business head- lease, Orix Auto Infrastructure Services;
Nidhi Bothra is executive vice president of Vinod Kothari Consultants and director of the Indian Securitisation Foundation.