IFSC GIFT City Seeks Aircraft Operating Leasing By Domestic Banks
If allowed, the move will increase competition in aircraft leasing sector.
The Department of Financial Services is considering a proposal to allow operating lease of aircraft by RBI-regulated banks to tap into a business that is dominated by foreign financial institutions, according to two government officials.
Private players operating in the GIFT City have sought amendment in the Banking Regulation Act to allow domestic banks to finance operating lease entities, one of the government officials quoted above told BloombergQuint on the condition of anonymity. They had initially approached the Reserve Bank of India. The matter was then moved to the Department of Financial Services, under the Ministry of Finance.
An operating lease permits the use of an asset but does not transfer the ownership of the asset. The Indian Banking Regulation Act, 1949, doesn’t recognise operating aircraft leasing as a financial service and therefore banks can’t fund it.
The move, according to the first official, would allow more domestic competition, as well as the sector won’t be at the mercy of foreign banks. Fourteen Indian leasing companies, the official said, have so far set up in the GIFT City.
According to the second official quoted above, the proposal is currently in deliberation stage.
BloombergQuint’s emailed queries to the Department of Financial Services, the Ministry of Finance and the RBI remained unanswered.
“This is an enormous business opportunity and India is the now the third-largest importer of aircraft. Sustained growth is also anticipated in the next two decades. Therefore, enabling all of this will be helpful,” Injeti Srinivas, chairman, International Financial Services Centres Authority, told BloombergQuint without commenting on the proposal. “Domestic participation needs to be there. It will infuse confidence in foreign players also.”
On Oct. 16, 2020, the finance ministry through a notification declared aircraft lease as a financial product under the IFSCA Act 2019. This includes operating and finance leases and any hybrid of operating and finance leases of an aircraft. Much like the RBI, IFSCA is a regulator established under the International Financial Services Centres Authority Act, 2019, that has its jurisdiction within GIFT City.
Indian banks have set up international branch units within the IFSC that are still governed by the domestic regulations as notified by the RBI. According to the Banking Regulation Act, domestic banks can participate in financial leasing only. Only banks headquartered outside the country are able to participate in operational leasing.