In 2011, India’s earthmoving and construction equipment (ECE) financing industry was valued at Rs 23,000 crore, the report estimated.
Financing accounts for about 80 percent of equipment purchased. In the case of imported machinery, it’s even higher, with 90 percent of equipment purchased being financed. However, the report pointed out that over the next few years, the ECE financing industry is expected to grow by a compound annual growth rate of 22 percent.
Devendra Vyas, Chief Executive Officer of major equipment finance company SREI Equipment Finance felt that the downturn in the industry is a temporary phase. “Large ECE equipment buyers, who are our large customers for finance, are faced with major challenges as most large projects have gone into financial trouble due to the economic slowdown,” said Vyas. “Relatively speaking, the smaller and medium customers are less affected as their portfolios are doing reasonably good,” he added.
Finance companies are hopeful that the slowdown in demand has reached its bottom and from now the process of recovery would take place. “In my opinion we are now touching the lowest point at the bottom and the curve will start moving upwards from here. But the nature of the ECE business is such that India being a huge economy, even if it starts improving now, the actual impact on our business would start only after 6 to 8 months,” Vyas said. “The finance industry is hopeful that the demand for ECE finance will start booming from the end of 2014.”
In the long term the equipment finance companies are highly optimistic as Indian ECE industry will continue to witness strong demand emanating from the growing need of a developing economy. The government should also allow infrastructure developers to use ECB (external commercial borrowings) funds for buying equipment made in the country. Since ECB funds are cheaper, this will not only boost the domestic manufacturing industry but also boost direct and indirect job creation.