Banks cautious of offering education loans for aviation courses

Cautioned by the slowdown in the aviation industry, banks are wary of offering educational loans for aviation courses. The banks may not readily offer loans for these career training courses for the fear of the income generating potential of these courses.

Banks treat these loans as personal loans and seek similar collateral as these are not treated as professional courses.  

At present, India has around six branded aviation training institutes with around 12 new ones since the last six months.

These institutes offer one-year diplomas after higher secondary (+2) to train 17-24 year-old candidates as cabin crew. The fee may range between Rs 1 lakh and 1.25 lakh per student.

Institutes also offer part-time courses with jobs paying around Rs 16,000 a month. Over 70,000 students have been trained in the last two years alone.

A Bank of Baroda (BoB) executive was quoted in media reports saying that due to the change in the business environment, students who had taken loans for cabin crew (purser/air hostess) courses may not get jobs in the aviation sector.

The students who do not get jobs may get employed in the hospitality sector which offers comparatively lower salaries. This will have adverse impact on the repayment schedule.

The Reserve Bank of India's prudential norms have made 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 on loans for these courses are higher than prime lending rates (PLRs), which are in the range of 12-50 and 16.50 per cent. The loan amount required for pursuing airline courses, especially pilot and other technical courses, is also higher.