To tap the growing potential of India?s infrastructure space, non-banking finance companies (NBFCs) are stepping up their exposure towards construction equipment lending.
In the current year, NBFCs plan to lend aggressively to the sector as a pick-up in construction activities will translate into increasing demands for equipment.
While Shriram Transport Finance has floated a separate subsidiary called Shriram Equipment Finance, Mahindra Finance aims to increase construction equipment lending by 50%, to around Rs 300 crore, in 2010-11.
Similarly, Magma Fincorp has plans to offer some easy equated monthly installments (EMI) schemes to the players in the segments during the monsoon, a dry spell for construction activities, and looks for 25% rise in lending to Rs 1,500 crore.
Said Mahindra Finance chief financial officer V Ravi , ?We have already started getting queries for loans in construction equipment. We expect the loan book to scale up this year keeping in view the boom in the infrastructure segment in the days to come, especially with the faster pace of economic recovery.?
As on March 31, the NBFC has a cumulative loan book of around Rs 200 crore (in construction equipment) out of Rs 10,000 crore balance sheet. According to Ravi, his company will take advantage of its strong presence in semi-urban and rural area to expand loan book in the segment.
Launching a subsidiary, Shriram Transport targets smaller borrowers segment, including subcontractors with a ticket size of Rs 25 lakh on an average. They are trying to generate Rs 500 crore in the first year and Rs 5,000-crore business in next three years.
Said Umesh Revankar, deputy managing director of Shriram Transport Finance Company, ?We see huge opportunity in this sector. Many big projects are lined up, ranging from roads, power to value-added steel products, which are expected to generate a substantial demand for equipment. Moreover, there are not many players in this niche segment.?
Recently, road transport & highways minister Kamal Nath said the ambitious target of building roads at the rate of 20 km a day will be achieved by June. The cost of building 1 km typically stands at around Rs 1.5-2 crore, translating into Rs 300-400 crore a day. The 11th Plan Commission (2007-12) envisages the need for an infrastructure investment of over $155 billion for development of roads, bridges, railways, ports and airports and over $ 2 billion in mining.
Typically, NBFCs offer equipment loans at the rate of 10-12%, depending on individual cases with a ticket size of Rs 8-12 lakh for second-hand equipment and Rs 12-18 lakh for the original deals. Most popular equipment include loaders, back-loader, excavator, tippers and dumpers.
