| What potential does the logistics sector hold? How do you see it shaping up over the next few years? |
| The logistics industry plays a major role in the economy of the country. This is so because logistics forms an integral part of supply chain management of almost every industry and about 10-15 per cent of product costs is logistics related. In fact, the total cost incurred by some industries up to the manufacturing point is only one-third of the selling price and the balance consists of logistics and related aspects. |
| The future outlook for the logistics industry hinges upon an economy that is growing quickly. Over the years, the freight traffic has been steadily increasing and this is likely to increase further. |
| Some of the key issues that will determine the future course of the development of logistics sector are the recently announced "public-private partnership strategy', technological advancements, the investment in the several infrastructure projects and integration of logistics services. |
| The single most important challenge, that the logistics industry faces, is to equip itself to efficiently handle the significant increases in freight movements as anticipated by economists. |
| What are the Banks' views on the Road Transport sector? Which are the key factors that are making this sector worth looking at? |
| The road transport sector forms the major chunk of the logistics industry and is currently estimated to be at Rs. 500 billion. As of now approximately 70% of India's freight movement and 85% India's passenger movement is through road, making India's Truck & Bus Industry is 5th largest in World. Over the years, the road freight traffic has been steadily increasing as compared to the other modes. This is likely to increase further owing to the expected increase in freight traffic due to socio economic growth and the marked preference of users for road transport. |
| During the first quarter of the current financial year, commercial vehicle industry has grown by 47%. Growth of Medium & Heavy Commercial Vehicle's was 52%. Light Commercial Vehicles also performed well with a growth of 40%. This fact endorses the growth of the road sector in India. |
| Currently, the Road transport industry is growing at a fast pace, sales figure of various commercial vehicle manufacturer's support the same. Below mentioned are the sales figures for the last 3 years and projected for the current financial year, which will give you an idea: |
| The Golden Quadrilateral and the North South East West projects by the National Highways Authority of India (NHAI) is expected to make the road freight traffic much faster and efficient. |
| How big is the SME participation in this sector? What parameters do you keep in mind when financing SME players in the Road Transport space? |
| Like most other industries in India, SMEs are an integral part of the logistics industry. They are more dominant in the Road transport segment. In this segment alone, the potential of the industry stands at approximately Rs. 260 billion in terms of term loans for purchase of vehicles & subsequent demand of Working capital facilities. |
| Banks have traditionally lent against the security of fixed assets alone. ICICI Bank uses alternate methodologies to finance SMEs in this sector. Using a sector specific approach (cluster approach) we get a better understanding of the sector and develop credit proxies to evaluate their business. Unlike the conventional financials based lending model, the cluster approach captures a 360 degree view of the SME bringing out the strengths in terms of its manufacturing capabilities, marketing strengths, position vis-a-vis competitors and other strengths. |
| This gives a true understanding of the potential of SMEs and thus puts the Bank in a better position to take credit calls, much beyond the usual financial parameters. |
| Some of the key parameters to be evaluated while lending to this sector are: |
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| What are the unique offerings of ICICI for the road transport sector? |
| Most of the entities in road transport sector are from SMEs and therefore we need to have a different approach towards this sector. ICICI Bank has a significant exposure in this segment in terms of term loans and WC facility, apart from a larger Commercial Vehicle funding portfolio. |
| We provide a complete range of financial solutions to this segment under one umbrella. We meet the financial requirements of this sector through Working Capital facilities and offer Term Loans for creating warehouses, which is a focused area of future in the segment. |
| Products like Bank Guarantees and Bill Discounting enable trade transactions for this sector. Transaction banking facilities like Cash Management Services, Fleet Cards and Roaming Current Accounts bring in efficiencies in day-to-day financial transactions. |
| We have entered into tie-ups with all the manufacturers of commercial vehicles (and ancillary suppliers) for vehicle funding at the best-available market rates. We also offer insurance facility for vehicles funded by the Bank. |
| Is the Bank taking other initiatives besides financing to boost the development of this sector? |
| Apart from innovative products and service offerings, ICICI Bank is aiming to play a role in being an enabler for businesses, especially for SMEs. The SME Expo "� Logistics 2006, scheduled to be held in Mumbai in August, is a step in that direction. We aim to create a platform for SMEs to explore business opportunities and network with the stakeholders within and outside the industry. It would also provide an opportunity for the SMEs to benefit from creating linkages with some of the large corporates participating in the expo. |
| A two-day seminar would form part of the expo, would bring together eminent personalities from the industry to discuss important issues facing the industry and share best practices. We have planned this to be an annual event, so that we could partner the growth of SMEs in this industry |
| We spotlight top-performing SMEs in the logistics industry through an independent category in our Emerging India awards. |
| Various other initiatives like SME Dialogue (in Economic Times) and this magazine are used to share knowledge and highlight business and policy issues relevant to the SMEs, including the ones in the logistics industry. |
| "ICICI Bank is looking at playing a role in being an enabler for businesses, especially for SMEs" V Vaidyanathan Senior General Manager, Retail Banking, ICICI Bank |
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