Computer equipment leasing in India; Tata Information systems Ltd., An IBM & TATA Company

Abstract

In India, though leasing still remains a primitive business, the industry is emerging as a giant with economic liberalisation opening up new vistas. The spectacular 100% growth of this sector in the last one year (94-95) indicates that leasing has finally come of age. The primary objective of this study is to estimate the market size, study the current market: practices and pricing related issues for Computer Equipment leasing in India. . It is conservatively estimated that the market for computer eqpt. leasing was about Rs. 80 to Rs. 90 crores in 1993-94 and that approx. 5% of compuers sold in the domestic mkt. are leased. The most common lease structuring in the Indian market is 1% LMF, lease period of 3-5 years, monthly payment through cheques on due date,1% residual value and purchase of eqpt. at end of the lease period. Currently typical IRR for lessors is about 2%-4% above SBI MLR. for the 25% depreciation asset category.Insurance of asset is done by lessees at their own cost in consultation with lessors. Financial leases as found out from the survey do not seem to be common amongst the blue chip companies as far as computer equipment leasing is concerned. The reasons that can be attributed to this are that most of these companies are in a cash strong position . Also for these companies leasing seems to be as expensive source of financing as they cannot claim the depreciation and also have to pay lease tax. However leasing seems to be popular amongst the fast growing companies which may be cash strapped and also because their tax holidays on account of ongoing investments prevent them from enjoying depreciation benefits immediately. Another segment which is growing fast is leasing by PSUs which appears to be due to the fund constraints arising out of falling govt. budgetary support. The response to the idea of introducing an operating lease scheme in India for computer equipment's was well received by the corporates. These companies do not mind paying a little extra for an operating lease which would take care of the maintenance of the equipment and most importantly offer obsolescence protection. This would also help them stabilise their cash flows and take upgradations whenever required, Due to these advantages, the interviewees felt that the offer of operating lease for computer equipment would definitely be well accepted in the corporate provided it is offered at a competitive price vis- a -vis financial leases. In India, all leases done so far have been financial leases and no significant operating leases have been reported. However the leasing industry is exploring this financing option for assets such as cars and medical eqpt. India with only 0.7 computers per thousand people as against the world average of 25 people per 1000 reflects a tremendous scope for the growth of computer industry with concomitant growth in computer eqpt. leasing.