As per a Credit Data Report released by Reserve Bank of India (RBI), Bank lending money to Indian Aviation sector has increased by more than half.
Reserve Bank of India (RBI) is the central banking institution of India. It was founded in 1935 and is in charge of issuing money and monetary policy for the nation. It oversees and regulates commercial banks.
Indian Aviation : Bank Lending Increment
In year 2023, Indian Aviation sector borrowed a total of Rs 40,449 crore from Banks. In previous year, this amount was Rs 24,452 crore. On a yearly basis, bank lending in Indian Aviation sector has registered a growth of 65 percent. In previous year, it registered a decline of 8.7 percent instead.
News Publication Moneycontrol talked to some banks and airline executives to understand the reason behind this huge growth in borrowing money.
Banks Looking at Long Term Aspect
Bankers, who wanted their identities to be hidden told MoneyControl that the reason of growth in credit owes to the increasing prices of lease contracts. Furthermore, airlines conducted a robust hiring in this year. For training this much workforce, capital is required.
Even when an airline like GoFirst failed, banks are interested to lend in aviation sector. This is because the future of this segment is bright and bankers are looking at the medium to long term aspect. Banks are lending to some airlines and more focused on long-term lending.
Earlier, SpiceJet was kept on enhanced surveillance by banks after the airline was involved in a series of incidents in year 2022. Directorate General of Civil Aviation (DGCA) put it on a enhanced surveillance, prompting banks to do the same. Later, it was removed.
Airlines Need More Money
Because of negative outlook by global leasing regulatory body Aviation Working Group (AWG), India is facing an increase in lease rentals. As a result of which, airlines need more money. When compared to 2022, the cost of monthly aircraft leasing contracts has increased by roughly 1.5–2%, which has increased borrowing when domestic airlines take delivery of new aircraft.
Earlier, Air India confirmed that the bank borrowing has increased significantly since July 2023. There are more factors responsible for this situation. These factors includes high fuel prices, increment in rental dues, more hirings by the airline and forex prices.
Aviation Turbine Fuel (ATF) prices consists of nearly 40% of the airline expenses. In terms of hiring, Air India and IndiGo recruited a lot of staff in this year to fuel their growing fleet and network.
Additionally, a few airlines and major airport operator has forayed into the aircraft leasing business. An official from IndiGo said that the airline increased borrowing because of increased fuel prices and forex rates. He added that banks are eager to lend the domestic airlines at any moment as they expect a huge growth in Indian Aviation sector.
Source : MoneyControl