PSBs explore aircraft financing arm at GIFT
Several public sector banks, including the country’s largest lender, the State Bank of India (SBI), are in talks with the government to set up aircraft leasing arms at the International Financial Services Center (IFSC) in GIFT City (Gujarat), two people with knowledge of the matter said Mint.
The State Bank of India is considering setting up a new aircraft rental business in the town of GIFT, a senior bank official said on condition of anonymity.
“SBI has funded airlines but not aircraft leasing. Due to the current circumstances, banks are unwilling to finance airlines although the industry is expected to rebound after the pandemic, ”the person said.
“Right now, SBI is looking at aircraft leasing and corporate tax issues. We look at it (aircraft rental) and take a call based on the viability model, ”the person added.
Questions sent to the SBI spokesperson, however, remained unanswered until the time of publication.
Big Indian public sector banks like SBI have funded airlines to buy planes. However, under current regulations, these banks are only allowed to do aircraft debt financing.
But that is about to change with the International Financial Services Center Authority (IFSCA), the regulator of GIFT city, which presents a draft regulation allowing financial services companies to conduct aircraft rental transactions.
The IFSCA has authorized banks to open aircraft rental operations in the city of GIFT, an IFSCA official said on condition of anonymity.
“Non-financial entities can also license and start the business or go for a joint venture with foreign donors or set up a wholly owned subsidiary to run the business,” the official said.
“The regulator ensures parity with other IFSCs in terms of exemption from capital gains tax, GST, etc.”, added the official.
As of November 2020, Indian airlines had more than 700 aircraft in their fleets, according to data from Economic Survey 2021-22.
Major Indian airlines, including the leading national operator IndiGo, which have a huge aircraft order book, are selling and leasing (SLB) aircraft to keep it lightweight and profitable.
An SLB is a transaction in which the owner sells the aircraft and then leases it back to the buyer. This type of agreement usually removes the aircraft and its associated debt from the carrier’s balance sheet.
Indian carriers also regularly lease planes to foreign lessors in Ireland, Dubai (UAE) and China, among others.
In an effort to encourage aircraft lessors to relocate to India, the government earlier this month, in its union budget, introduced tax incentives and other benefits, including tax exemptions on capital gains for companies setting up in GIFT City.
The government, however, wants to regulate the aircraft rental business in the long term. To this end, it is also in discussions with major Indian banks including the SBI to set up a leasing branch in the city of GIFT, a senior civil aviation ministry official said on condition of anonymity. .
“It now appears that foreign lessors are financing all of the aircraft leasing activities in India. In order to provide a level playing field, tax exemptions for aircraft rental companies have been granted to the city of Gift, ”the official said.
“Rental transactions need to be regulated. So it can be monitored (at GIFT City) and we can also see the feasibility of it, ”the official added.