India’s business aviation sector has matured significantly. Yet, financing a business jet through Indian banks remains an exception rather than the norm. Why does asset-based lending work globally—but struggle in India?

Over the years, questions around why Indian banks hesitate to finance business jets through asset-based lending continue to surface—particularly as corporate aviation in India matures and demand steadily grows. On the face of it, a modern business jet is a high-value, globally traded asset. Yet, in practice, Indian banks remain cautious and selective.

This hesitation is not driven by a lack of demand or distrust in aviation per se. It is rooted in how banks perceive risk, control, enforceability, and explainability.

Below is a set of perceived key concerns.

1. Aircraft as a Difficult Asset to Secure

Unlike real estate or conventional plant and machinery, an aircraft is a highly mobile asset. A business jet can exit Indian jurisdiction within hours. While regulatory grounding is theoretically possible, practical enforcement—especially outside India—remains challenging. From a lender’s perspective, physical control of the collateral is uncertain, making repossession complex and time-consuming.

2. Regulatory and Enforcement Challenges in India

Even with safeguards such as IDERA, repossession in India has historically proven to be procedurally complex and time-consuming. The Kingfisher Airlines insolvency is often cited within aviation finance circles, where multiple aircraft—despite being owned or financed by foreign lessors—remained grounded in India for extended periods due to court proceedings, competing claims, and administrative bottlenecks.

3. Residual Value and Market Liquidity Risk

The secondary market for business jets is thin and highly specialised. Asset value depends on maintenance status, engine and APU programmes, avionics relevance, and regulatory compliance. Sudden value drops can occur due to new aircraft launches or technical events, creating a value gap at enforcement.

4. Operational and Maintenance Dependency

Aircraft value is deeply linked to disciplined operation and maintenance. Deferred inspections or cost-cutting can rapidly degrade value. High-cost events such as engine or APU overhauls introduce sudden exposure—risks banks are not equipped to monitor daily.

5. Foreign Exchange, Currency Volatility, and Cross-Border Exposure

In India, aircraft financing is typically extended in Indian Rupees, while business jets are priced, valued, and traded globally in US Dollars. This creates a natural currency mismatch for lenders. Exchange-rate movements can therefore alter loan-to-value ratios over time, independent of the aircraft’s technical condition or market desirability. It is important to recognise that currency movement does not always work against the lender. In certain cases, depreciation of the Rupee against the Dollar can partially mitigate asset value erosion. Even where an aircraft’s USD market value declines over time—as is common with business jets—the corresponding movement in exchange rates may result in a stable or improved realisation in INR terms at the time of liquidation, particularly after several years of loan amortisation. That said, in the event of default, achieving fair market value usually requires the aircraft to be sold outside India, given the limited domestic buyer pool. Such offshore disposals involve international brokers, foreign buyers, and escrow arrangements, with sale proceeds received in foreign currency. For Indian banks, recovery of these proceeds requires strict compliance with FEMA and RBI regulations, including reporting, repatriation, tax clearances, and audit documentation. Accordingly, while currency depreciation can at times act as a partial economic mitigator, banks continue to face cross-border regulatory, procedural, and reputational risks during enforcement—risks that are unfamiliar when compared to liquidation of domestic assets.

6. Reputation and Policy Sensitivity

Business jets are often perceived as luxury assets. Any stress or default attracts audit, vigilance, and media scrutiny, making credit committees risk-averse.

7. Limited In-House Aviation Expertise

Most Indian banks lack in-house aviation technical and valuation expertise, increasing reliance on external consultants and perceived risk.

8. Why Offshore Lenders and Leasing Structures Dominate

Even foreign banks rarely provide pure asset-based USD lending with aircraft ownership vested in the lender. Instead, they rely on finance lease structures where aircraft ownership sits with an SPV in a lender-friendly jurisdiction, supported by IDERA from DGCA. Leasing—not lending—has become the preferred structure.

Collateral Expectations and a Way Forward

Indian banks often insist on additional collateral equal to or exceeding aircraft value, making financing unviable for small and mid-sized operators. A potential solution lies in adopting a global model: aircraft ownership vested in a specialist aviation entity that understands maintenance and operations, continuously monitors the asset, and finance-leases it to the operator. Such an entity could be quasi-governmental with bank participation. Importantly, this model has the potential to encourage business aviation growth manifold in India. By obviating the need for excessive collateral and creating a predictable, bankable financing pathway, it would encourage first-time and small operators to acquire business aircraft—unlocking latent demand and accelerating the development of India’s business aviation ecosystem.

Conclusion

Indian banks do not avoid financing business jets because the assets lack value. They hesitate because aircraft are hard to control, hard to repossess, and hard to explain within conventional banking frameworks. A structured, leasing-led, specialist-ownership model could bridge this gap—reducing risk for lenders, lowering entry barriers for operators, and supporting sustainable growth in India’s business aviation ecosystem.