Banks reluctant regarding disbursement of loans for aviation studies

In the recent times there has been a boom in the aviation industry because of which more and more students are taking up aviation courses. But banks classify aviation as career training and not professional education for the purpose of loan disbursement, so they have categorized these loans as personal loans and seek collateral accordingly.

Banks have been reluctant regarding disbursement of loans for aviation studies which in due course will be hampering the job prospects in the aviation sector. According to analysts this type of attitude of banks might affect the fortunes of aviation training institutes.

In India there are more than six branded aviation training institutes. As per industry experts, in the last six months 12 new institutes have started. Most of these institutes are offering one-year diplomas after higher secondary (+2), to train the candidates aged 17 to 24 years as cabin crew. The institutes charge fees anywhere, between Rs 1 lakh and 1.25 lakh per student.

There are some institutes who offer part-time courses. These jobs pay around Rs 16,000 a month. Approximately, over 70,000 students have been trained in the last two years alone.

Bank of Baroda executive said, "With a drastic change in the business environment, students who took loans for cabin crew (purser/air hostess) courses may not get jobs in the aviation sector. Instead, they may end up in the hospitality sector, which offers lower salaries compared to airline jobs. This has adverse implications on the repayment schedule. So we are going slowly on loans in this space."

Ananthakrishna, chief executive, Karnataka Bank stated, "There have been reports that a US-based airline training institute, which had many Indian students, had shut operations. The economic conditions (for aviation sector) have become uncertain and in such circumstances, banks have to be cautious in granting financial assistance for such courses."

The Reserve Bank of India has formulated prudential norms which makes it compulsory for banks to set aside a high risk weight age amount (125 points) for personal loans. Banks charge higher rates to cover the costs and risks.

Therefore the interest rates will be higher than prime lending rates (PLRs) currently which are ranging between 12-50 and 16.50 per cent. Hence the amount of loans for airline courses, especially pilot and other technical courses, is on the higher side.

According to the credit head of a private bank most of the students who take such loans come from financially well off families therefore they are capable to pay back the dues.