CIDC mulls construction equipment bank

SREI International Finance Limited, a member of the CIDC — which has 75 per cent of its portfolio in financing of construction equipment — plans to pump money into this body. “Initially, we will infuse Rs 5 crore into the equipment pool and if the concept picks up, we will raise the authorised capital to Rs 50 crore after ayear,” Sunil Kanoria, managing director, SREI International Finance Limited said.

The cost of leasing construction equipment is very high in the country — around 20 per cent of the project cost, including the processing fee and interests. The construction equipment bank would also work out the logistics and the transportation of the equipment.

CIDC had conceptualised the bank in January this year; it is holding a seminar on July 28 and 29 in Hyderabad to work out the modalities of the construction equipment pool. The seminar would be sponsored by SREI International, CIDC and the National Academy of Construction.

“At present, the equipment available to the construction industry fulfil only 25 per cent of the total industry requirement,” he added. More than that, lack of mechanised operations has resulted in an adverse impact on quality, speed, efficiency in the long-run, even on the economy of construction.

The CIDC plans to involve all construction consultants, contractors, construction equipmentmanufacturers, spare parts manufacturers and project owners and make them the members of such a bank.

Under the aegis of this body, the CIDC would also work on the regulatory framework and give suggestions to the Government to modify the tax structure and introduce value-added tax (VAT) in the construction industry.

“Once these impediments are removed, the growth in infrastructure would be much faster,” feels Swarup.

The bank would cater to the nationwide needs of the construction industry. “The industry employs around 31 million people and has a multiplier effect of 1.8. Therefore, it needs the requisite support structure,” he adds. The CIDC is not seeking any Government help for this venture. “Things never take off if you look for Government support. The bank would be run with the endeavours of the industry,” he added. Moreover, the construction bank will train workmen on the use of the equipment as well.

The bank would be quite different as compared to a construction equipment leasing firm.“In the case of construction leasing firms, often the equipment is bought by the project owner. But the proposed bank is a `share-your-wares’ concept,” he added.

The CIDC will set up the bank with a capital base of around Rs 2,000 crore and broad-base it to around Rs 6,000 crore within a year’s time by the revenue generated by leasing the equipment. Considering the recent spurt in demand of construction equipment, even equipment worth Rs 6,000 crore, according to Swarup, would meet only 10 per cent of the total demand.