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Specialized NBFCs

Specialized NBFCs. Suneet Maheshwari, Chief Executive L&T Infrastructure Finance Company Ltd. September 4 , 2010. Agenda. Specialized NBFCs Types of NBFCs Valuations – Specialized NBFCs do better at the market USP: Build Niche in Domain Business Areas Focus is the Mantra

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Specialized NBFCs

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  1. Specialized NBFCs Suneet Maheshwari, Chief Executive L&T Infrastructure Finance Company Ltd. September 4, 2010

  2. Agenda • Specialized NBFCs • Types of NBFCs • Valuations – Specialized NBFCs do better at the market • USP: Build Niche in Domain Business Areas • Focus is the Mantra • Opportunities in Niche markets • Regulation – level playing field benefits IFCs • Leaner Operating Cost structure

  3. Specialized NBFC • Specialized NBFCs can be broadly classified into three Groups • Infrastructure Finance Companies (IFCs) • Focused on Infrastructure financing • Asset Finance Companies (AMCs): • Commercial vehicle financing • Tractor financing • Asset Financing • Microfinance companies with focus on: • Rural Low income household financing • Cottage enterprise financing

  4. Specialized NBFC - Types • Specialized NBFCs can be broadly classified into three Groups • Infrastructure Finance Companies (IFCs) • Infrastructure financing : L&T Infra, IDFC, PFC, REC • Asset Finance Companies (AMCs) • Used Commercial vehicle financing : STFC • Tractor financing : M&MFS • Asset Finance : L&T Finance, SREI-BNP • Microfinance companies : SKS Microfinance : SE Investments

  5. Specialized NBFC do better at the Market • Focused/Specialized NBFCs command better valuations

  6. USP: Build Niche in Domain Business Areas • Niche Expertise in Specialized NBFCs > Diversified interests of Banks • Strong domain knowledge and business understanding • L&T Infra: Strong knowledge support from parent company, L&T • STFC: More than 3 decades of expertise in loan generation, CV valuation and collection • PFC and REC: Nodal agencies for UMPPs and RGGVY • Strong expertise housed in respective NBFCs through presence of experienced personnel • Years of experience and skill sets in the business areas • Better understanding of the needs of clients • A bouquet of supplementary products and services • One stop solutions provider

  7. Focus is the Mantra • Strong focus in the areas of operation unlike Banks • Banks have a wider area of interests and hence not focused • Strong grip of the respective market • Strong relationships with Clients: Based on faith and confidence • Quick response and freedom from red-tape • Greater emphasis on team building and appropriate resource planning • Ability to retain and attract experienced talent • Better asset quality • Delinquencies in infrastructure financing by L&T Infra/IDFC are considerably low • STFC and MMFS have gradually developed sound methods of evaluating loan proposals and assets

  8. Opportunities in Niche markets • Huge Infrastructure investments planned to benefit NBFCs/IFCs focused on infrastructure lending • 5-Yr Plan-11 & 12 infra spend is targeted at US$514bn & US$1trn • Banks have internal exposure limits for infrastructure lending • Average maturity of banks’ liabilities is less than two years which restricts substantial exposure to longer term infrastructure assets • Higher GDP, better rural economy benefits CV & tractor financing NBFCs • GDP to drive freight capacity • Better monsoons & higher rural disposable income • Micro finance companies • Financial inclusion - Rural areas yet to get covered

  9. Regulation – level playing field benefits IFCs • Regulatory benefits give them a level playing field • vis-à-vis banks on liability side • IFC status to L&T Infra, IDFC, PFC, PTC Fin • Increase in Single & Group exposure limits • Access to longer tenor finance in a cost effective manner (Infra Bond) • Easier access to ECBs under automatic route (upto 50% of Networth) • Lower risk weights for IFC’s funding • Higher exposure limits for bank borrowings • Absence of SLR/CRR requirements for ND-NBFCs • No regulatory requirement to keep 31% of funds (CRR + SLR) in low/no-return generating assets • Keep funding costs competitive despite higher cost liabilities

  10. Leaner cost structure • Lower Operating costs as compared to Banks • Cost to income for IDFC is ~25% as compared to 40-45% for Banks • Absence of Liability franchises • Presence of concentrated lenders • Smaller employee base • STFC and MMFS, have operating costs of 23% and 30% respectively • Large scale operations create economies of scale

  11. Suneet Maheshwari, Chief Executive L&T Infrastructure Finance Co. Ltd. 3-B, Laxmi Towers, 2nd Floor Bandra Kurla Complex, Bandra (E), Mumbai – 400 051, India Tel: +91-22- 4060 5301 Fax: +91-22-4060 5353 suneet.maheshwari@ltinfra.com www.ltinfra.com Thank You

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