International Financial Services Centres Authority (IFSCA) is in talks with the Reserve Bank of India (RBI) and other regulatory authorities to make amendments to the Banking Regulation Act to include aircraft lease financing as a financial service.
A top source explained that under the Banking Regulations Act, aircraft leasing is not a financial service and therefore banks cannot fund it. “It needs the amendment of the provisions to allow them to finance operating lease entities,” the person explained.
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The IFSCA is in conversation with the RBI to at least make a provision for including aircraft leasing and financing under IFSCA.
New stream of business
Aircraft leasing in India’s a fairly new stream of business. The government has been boosting aircraft leasing through GIFT city in Gujarat. While it is a welcome move for interested players, financing is becoming a hurdle for lessors.
Narrating his company’s experience, a potential lessor said that it was difficult for him to be able to secure funding through an Indian bank or financial institution. “Once the funding starts coming from other countries, the costs go up and the law of the said land would apply.”
Another problem, the person quoted above pointed out was the lack of confidence from international banks and institutions. “If Indian banks aren’t going to fund potential players, then why should international bankers fund a company,” is a question he has been asked by multiple international banks and other financial institutions abroad.
Kanika Tekriwal, CEO, JetSetFleet Management Services IFSC Pvt Ltd, who has set up a leasing firm in GIFT city, said: “Globally, an aircraft is a collateral. In India, only an immovable asset is considered as a collateral. An aircraft costs anywhere between $30 million and $50 million. It is impossible for an entrepreneur to have that kind of a collateral facility. It seems that the banks do no have the mechanism to fund Indian lessors. This is needed at GIFT city which seems to be working in isolation and needs to be in complete sync with all regulatory authorities.”
A leasing expert in India, on condition of anonymity explained that if the leasing ecosystem has to setup in India, the funding also has to come from Indian shore. It helps the lessors to save on legal cost, tax consultation cost, insurance cost and other administrative costs.
He explained, for example, when China decided to have promote local leasing companies, its banks too were guided by the government to promote local funding. Over a period of time, this built up into an ecosystem making it easier for Chinese leasing companies to get funding from local as well as international banks. Today, it is a large leasing hub for local markets.
A top official BusinessLine spoke to also suggested that like Bank of China made a subsidiary specifically to fund aircraft leasing, and other aviation related funding, India national banks should also follow suit. “Today, at least four out of 10 aircraft are funded through BOC Aviation, India too should have a provision for the same.”