Financial Institutions Should Consider Asset Backed Funding for Ship Purchases, Says IFSCA Chairman Rajaraman

Indian banks and financial institutions should consider asset backed funding for ship purchases, K Rajaraman, Chairman, International Financial Services Centres Authority (IFSCA) has said as the local shipping industry clamour for long-term, low-cost funds to renew and expand fleet to boost Indian tonnage as well as to meet decarbonisation goals. “We have to bring in a lot of appetite amongst Indian financial institutions to finance the shipping industry. Currently, Indian financial institutions lend to corporates, they do book or balance sheet financing but not real asset financing. So, I guess time has come maybe for many of the financial institutions to look at asset financing as well now that India’s growth is on a very strong trajectory,” Rajaraman said while speaking at the “India Ship Finance Forum’ organised by Marine Money on 20 February Rajaraman emphasised that “shipping being a very important element of exports is taken care of in the appropriate manner”.

“If you look at India 2047, the target is to reach a GDP of $32 trillion. Currently, we are at less than $4 trillion. So, the exports are expected to reach at least $5-6 trillion which would mean that the logistics and shipping eco system have to be of a different order,” Rajaraman pointed out.

The system that prevails in IFSC GIFT City is a tax regime which provides a ten-year tax holiday out of any 15 years and entities setting up units in the GIFT City are also exempt from capital gains tax, GST, stamp duty, and so on. “This has created a fairly good financial basis for people to look at GIFT City for setting up their leasing platforms,” he said, noting that more than 8 ship lessors have set up businesses and there are many more who are in the process of applying.

Besides, three ships have been financed out of the GIFT City through some of the banks and 3-4 large ships have also been leased out of GIFT City.

“So, a process has been kick started. I know it’s a very long haul in the sense this is a very large industry which has been through ups and downs in a very volatile sector,” he said. “The opportunities for ship financing are very high;…. Now, lot of other players like private debt funds, private equity funds all of them have also joined the bandwagon in some way or the other in this highly specialised vertical,” Rajaraman said. “Our local banks are highly ignorant on ship finance; they are also not interested,” said a Mumbai-based shipping lawyer.

The local shipping industry has been lobbying the government to ensure a level playing field through tax rationalisation and long-term, low-cost funds to help compete with global fleet owners.