
A significant surge in lending to India’s civil aviation sector by banks was experienced in 2023. According to Reserve Bank of India’s (RBI) data, on a year-on-year basis; lending to the aviation sector increased by 65.4 per cent to reach Rs 40,449 Crore by the end of November 2023 compared to Rs 24,452 Crore during the same period in 2022. Industry experts attribute this to various factors, including an increase in the number of lease contracts and hiring activities in the sector.
“The sudden increase in lending activity is quite possibly in response to the heightened demand for leasing. Leasing is undoubtedly emerging as a viable option to expand fleets at a time when delivery of new planes may face delays due to supply chain challenges,” says Jaideep Mirchandani, chairman of UAE-based aviation major Sky One.
He says that the growth in the aviation sector will also require funding to ensure the updation of maintenance, repair, and overhaul (MRO) capabilities, with component and engine MRO requiring major spending. “Airlines need financial assistance from banks to develop MRO infrastructure, hire technical experts and expand regional connectivity. There is a growing demand for larger domestic fleets and this has prompted airlines to consider service expansion to new destinations and invest more in infrastructure and technology,” says Mirchandani.
The aviation expert also views the spike in lending activities as a strong testimony to the aviation sector’s ability to rebound from setbacks such as COVID-19 and maintain a steady growth trajectory. “It also underscores investors’ trust and optimism in the profitability of the aviation industry,” he concludes.