The Reserve Bank of India’s latest report reveals that gross credit deployment by Indian banks in the aviation sector has seen a staggering 93.4 per cent year-on-year jump in June. The total outstanding credit by 40 scheduled banks was over ₹21,733 crore in June 2022, which rose to ₹42,033 crore in June. This is the highest monthly credit outstanding since FY22.
Credit deployment within the aviation sector, considered a part of the services sector by the RBI, has surpassed the services sector’s average deployment, which grew at 26.7 per cent for the same period.
This marks a month-on-month (May versus June) increase of 32 per cent. The deployment has shown consistent growth in the past seven months.
Industry experts attribute the rise to investments within the sector and a healthy rebound of traffic, but it also highlights the funds requirement amid growth and inflationary pressures.
“The increased offtake in bank credit by airlines is attributable to the healthy traffic rebound and airlines focusing on augmenting their fleet through new acquisitions, along with the banks’ comfort in engaging with the sector given its growth prospects,” says Jagannarayan Padmanabhan, Senior Director and Global Head, CRISIL.
Domestic air traffic in June has risen 4 per cent from pre-Covid levels, to approximately 1.25 crore passengers, according to ratings agency ICRA.
The Indian aviation industry has seen an upswing since Covid-19. In the past two months, credit rating agencies CRISIL and ICRA have upgraded the ratings for Air India and IndiGo, respectively.
Crisil reaffirmed Air India’s rating at ‘Crisil AAA / Stable / Crisil A1+’, whereas ICRA upgraded IndiGo’s rating to [ICRA]A+(Stable)/[ICRA]A1+.
Both Air India and IndiGo have placed sizable aircraft orders. In the past year, India has witnessed the launch of new carriers such as scheduled operator Akasa, regional player India OneAir, and cargo player Quickjet.
Additionally, in the past year, Delhi, Hyderabad, and Bengaluru airports were expanded to add capacity, while Kolkata and Chennai are getting new terminals. Delhi and Mumbai airports, constrained for capacity, will get new airports in Jewar and Navi Mumbai, respectively, which are likely to become operational by 2024.
Capital-intensive, cyclical industry
Despite these developments, the aviation industry remains capital-intensive and cyclical. Over the past few years, the Indian aviation industry, like the global industry, was hit by the pandemic. Moreover, ATF (aviation turbine fuel) prices had surged by over 100 per cent per barrel after the Russia-Ukraine war and remain elevated. Industry experts believe that a part of the increase in credit deployment could also be to manoeuvre through these headwinds.
Another reason for the increase in deployment could be attributed to the Finance Ministry-backed ECGLS (Emergency Credit Line Guarantee Scheme) funding.
With the aviation industry picking up pace in recovery and growth, experts predict a steady rise in credit deployment for at least the next year.
ICRA has maintained a ‘stable’ outlook for the Indian aviation industry this year and expects it to remain stable in 2023-24.