Banks have increased lending to airlines, betting on the growth of domestic air travel in the long term.
Outstanding gross bank credit to aviation climbed 41 percent to Rs 31,628 crore on May 19 from Rs 22,318 crore on May 20 last year, according to provisional data released by the Reserve Bank of India on June 30.
Experts said lenders are confident that the sector remains safe for medium to long-term investments. According to projections by CAPA - Centre for Aviation, India’s domestic passenger traffic is likely to rise to 160 million in FY24 and 350 million by FY30.
“There are a lot of opportunities in the aviation sector and it also depends from company to company. So, wherever there are good opportunities, we are open,” said Shanti Lal Jain, managing director of Indian Bank.
Also read: Lenders approve Rs 400 crore funding for Go First; DGCA's decision awaited
"We lend on a long-term basis and see the strength of the promoter of the airline," the CEO of a bank said on condition of anonymity.
Ashwin Parekh, CEO of Ashvin Parekh Advisory Services, said banks are open to lending to aviation and not worried.
"There have been instances of airlines filing for bankruptcy. But banks majorly look at lending on a long-term basis. They also look at the personal holdings of the promoters, which guarantees safety," said Parekh.
Growth and challenges
India's carriers carried 12.4 million domestic passengers in June 2023, up 18.8 percent from a year earlier, according to the Directorate General of Civil Aviation. June marked the fourth straight month when domestic air traffic surpassed pre-COVID levels.
Also read: SpiceJet gets breather from Supreme Court in Credit Suisse's contempt plea
IndiGo, Air India, Vistara, AirAsia India and Akasa Air increased their respective market share amid the grounding of Go First, while SpiceJet's market share continued to decline. Air India, Vistara, and AirAsia India are now part of the Tata Group.
“In terms of all airlines, the number of passengers would have gone up, but definitely, this is one of the areas where we would need to be very, very careful,” said Prashant Kumar, MD of Yes Bank. “There are so many things which need to be looked at when lending, like underwriting and other things.”
In anticipation of growth, IndiGo ordered 500 Airbus aircraft this year, just after Air India said it would buy 470 Boeing and Airbus planes.
Banks are optimistic about the aviation sector even though Go First filed for voluntary bankruptcy in May. It sought an interim moratorium on financial obligations due to liabilities of Rs 11,463 crore. The airline is said to be preparing to resume services now.
SpiceJet was earlier subjected to heightened monitoring due to instances of inadequate maintenance and incidents during the monsoon in 2022. Later, the DGCA removed the airline from its enhanced surveillance regime.
“Other than airlines, you also have scope for lending in the sector like handling systems where there are a few opportunities,” said Jain of Indian Bank.
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