The financial environment in India has changed enormously in recent years and has witnessed an unprecedented growth in stature. Their response had been diversified on an integrated package of diverse financial services. Most of the major companies undertake fund based and non funded activities. Among the fund based activities, leasing has emerged as an important business providing long term finance to the corporates as well as individuals. The rapid growth in the financial services sector has left every one gasping to breath and the finance companies scouting around for talents to manage the ballooning business. The financial services in general and the NBFCs in particular have witnessed a phenomenal growth. Liberalization, deregulation, de-licensing, reforms and restructuring of the economy have opened up, sever6al opportunities for this industry. The industry has flourished immensely and has witnessed an unprecedented growth in stature and size, world over. As a result of these changes, the focus has shifted from the traditional fund based activities to the non fund based activities. Non-fund or fee based activities include leasing, hire/purchase, bill discounting, venture capital, private placements etc. Among the fund based activities, leasing has emerged as an important business that provides long term finance to the corporates as well as individuals. The boom in the field of leasing erupted when entrepreneur suddenly woke up to the tremendous possibilities offered in an economy chronically affected by the massive paucity of fund availability and a growing realization of enormous resources resource mobilization opportunities available in capital market.


The concept of leasing was initiated in the USA during the late 50s and even today the volume of leasing undertaken on global scale continues to grow at an impressive 10-12%. The leasing operation started in an organized manner only in the early 80s.In the last 5 to 6 years, leasing has come in a big way to India and it is evident by the mushrooming and growth of leasing. It is estimated that there are over 1200 non-bank financial companies and partnership firms engaged in leasing business of various types with a cumulative gross value of leased assets to the tune of Rs 1,250 crores by the end of 1988.

Leasing is understood in different ways in different environments. In financing sense, it comes under the general heading of installment in credit for the acquisition of a wide range of equipment. Leasing in actual practice is basically a contractual arrangement whereby the owner (lessor) of assets transfers the right to use the assets to the user (lessee) for a fixed period of time in return of rentals. Once the agreed period lapses, the lease agreement expires and the assets revert back to the owner.

Types of Lease:

This article briefly putlines the various types of lease:

Financial lease: A financial lease is also known as full payout lease, capital lease, long term lease, or net lease. In financial lease, the contractual period between the lessee and the lessor is generally equal to the expected full economic life of the equipment. Here, the lessor acts as a financer and the lessee takes the responsibility of maintenance and servicing of the equipment.

Operating lease: Operating lease is generally a short term and cancelable lease and the contractual period between the lessor and lessee is generally less than the full expected useful economic life of the equipment. The maintenance and other servicing costs are borne by the lessor and consequently the rentals are far higher than in other types of leasing. This type of leasing is not popular in India.

Leveraged lease: In a leveraged lease, there are three parties involved – lessor (leasing company), lessee (user of the equipment), and financer. Leasing company contributes by way of equity capital, financial institution, and/or banks finance by way of term loans towards the purchase of an asset to be leased.

Sale and lease back lease: Under this type of lease, a firm nay sell an asset which it already owns to another party and lease it back from the buyer. The lessee receives immediate cash for his assets and repays the lease rentals over the stipulated period.

Primary and secondary lease: Primary and secondary lease is also known as front ended lease. It is split into two parts where first part is known as the primary lease and alter part is a secondary lease. The rentals are generally structured in such a manner that the cost of the assets with profits is re-coupled in the primary period of the lease. The secondary lease is a perpetual lease with a nominal rental.

Domestic lease: A lease transaction is said to be a domestic lease if all parties to the transaction are domiciled in the same country.