The Hindu Business Line : India, a potential market for global auto leasing cos

Mumbai, July 30 Even as the auto industry is reeling under credit crunch, a relatively new vehicle financing structure – operational leasing – is taking roots in India with four international companies gaining business from the corporate world.

In operational lease, the financier – bank, NBFC or manufacturer-backed NBFC – leases the asset (vehicle) to a customer and recovers only a part of the asset value through lease rentals. The asset remains on the books of the financier. Unlike the financial leasing, at the end of lease period, here the customer is not obliged to buy the vehicle from the leasing company.

Operational Leasing

“Operational leasing model has been popular in the US and Europe for the last 40 years. But in India it is a relatively new concept,” said Mr Sujit Reddy, Managing Director, ALD Automotive India. “This has become an attractive option for corporates because under this scheme, the companies need not show an unproductive asset on their books while they can use the vehicle as their own,” said Mr Reddy.

Three of the world’s top four operating leasing companies which are owned by major international banks and automobile manufacturers are operating in India, signifying the growing competition to capture the evolving leasing market in the country.

Indian Market

Automobile manufacturers Volkswagen owns 50 per cent stake in Leaseplan, the first operational leasing company to set up shop in India, while ALD Automotive, which is in India since 2005, is fully owned by French bank Societe Generale. The latest entrant Arval is a subsidiary of BNP Paribas.

According to the industry estimate, the total fleet size of the operational leasing companies in India would be around 30,000.

“The real potential of the Indian market remains untapped. In the UK, of the three million corporate vehicles, about 1.5 million are leased by operational leasing companies,” said Mr Liam Donnelly, CEO, Arval India. Arval which currently has 120 vehicles and 12 corporate clients aims to expand its fleet size to 10,000 in five years.

“The rate at which corporates are opting for operational leasing, the influx of major leasing companies in India, soaring interest rates and the wide variety of vehicle models to choose from, all point in one direction – operational leasing will grow,” said Mr Sanjeev Prasad, Managing Director, Leaseplan India.

The company, which started operations in 1999, currently has a fleet of 15,000 vehicles and 900 corporate clients. “In about five years’ time frame, we expect the industry to cross annual revenue of Rs 2,500 crore,” said Mr Prasad.

“As a product, operational leasing sees 30-40 per cent year-on-year growth,” said Mr Neeraj Kumar, CEO, Orix Auto Infrastructure Services Ltd, a joint venture between Orix Corporation, Japan and Infrastructure Leasing and Finance Services Ltd.

The size of auto finance industry in the country is expected to quadruple with the new financing structures including operational leasing which are evolving rapidly, said a Crisil research report.

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