PSBS explore aircraft leasing arms at GIFT

THE IFSCA HAS ALLOWED BANKS TO OPEN AIRCRAFT LEASING BUSINESS IN GIFT CITY

MUMBAI/NEW DELHI: Several state-owned banks, including the country’s largest lender State Bank of India (SBI), are in talks with the government to set up aircraft leasing arms at the International Financial Services Centre (IFSC) in Gujarat’s GIFT City, two people aware of the matter said.

An SBI official, one of the two people cited above, said the bank is exploring the setting up an aircraft leasing business at the GIFT City.

“SBI has been financing airlines but not leasing aircraft. Due to the current circumstance, banks are not keen to finance airlines though the sector is expected to bounce back after the pandemic,” the official said on condition of anonymity.

“At the moment, SBI is looking at aircraft leasing and tax issues around the business. We are looking at it (aircraft leasing) and will take a call depending on the viability model,” the official said.

Queries sent to an SBI spokesperson remained unanswered till press time.

Banks, including SBI, have been financing aircraft purchase by airlines. However, till recently, rules did not allow them to finance leasing. This changed with the International Financial Services Centre Authority (IFSCA), the regulator for GIFT City, releasing draft regulations permitting the same.

IFSCA has allowed banks to open aircraft leasing business in GIFT City, an official at the authority said on condition of anonymity.

“Non-financial entities can also take a licence and start the business or opt for a joint venture with foreign lessors or set up a wholly owned subsidiary for conducting the business,” the official said. “The regulator is providing parity with other IFSCS in terms of waiving the capital gains tax and GST,” the official said.

As of November 2020, Indian airlines had a fleet of more than 700 aircraft, according to data from the Economic Survey 2021-22.

Airlines, including top domestic operator Indigo, which has a large aircraft order book, conduct sale and leaseback (SLB) of planes to remain asset-light and profitable. In an SLB, the airline sells the aircraft and then takes it back on lease from the buyer, removing the aircraft and its associated debt from the carrier’s balance sheet.

Indian airlines also regularly lease planes from lessors in Ireland, Dubai and China, among others. To attract aircraft lessors to set up shop in India, the Union budget rolled out incentives and tax holidays on capital gains for such companies opening at GIFT City.