Banks go slow on aviation study loans

Mumbai: Banks are reluctant about disbursing loans for aviation studies on fears that a slowdown will hamper the job prospects in the aviation sector. The move, say analysts, may affect the fortunes of aviation training insitutes.
India has more than six branded aviation training institutes. According to industry experts, 12 new institutes have started in the last six months alone.
Most of these institutes offer one-year diplomas after higher secondary (+2), to train the candidates aged 17 to 24 years as cabin crew. The fees range anywhere between Rs 1 lakh and 1.25 lakh per student.
Many institutes also provide part-time courses. These jobs pay around Rs 16,000 a month. According to rough estimates, over 70,000 students have been trained in the last two years alone.
“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 slow on loans in this space,” explained a Bank of Baroda executive.
Aviation courses are classified as career training and not professional education, for the purpose of loan disbursement. Banks categorise these loans as personal loans and seek collateral accordingly.
The Reserve Bank of India’s prudential norms make it mandatory for banks to set aside a high risk weightage amount (125 points) for personal loans. Banks charge higher rates to cover the costs and risks.
The interest rates will therefore be higher than prime lending rates (PLRs), which currently range between 12-50 and 16.50 per cent.
14/07/08 Kalpana Pathak & Abhijit Lele/Business Standard