Domestic airlines like IndiGo, Vistara, Air India, GoFirst, and Akasa Air are availing of loans from banks and financial institutions at interest rates lower than what the government's Emergency Credit Line Guarantee Scheme (ECLGS) charges them, senior government officials have said.
"Most airlines, except SpiceJet and GoFirst, have not applied for loans under the ECLG scheme as they are getting better rates from the open market," a senior government official aware of the matter said.
He added that SpiceJet has been loaned around Rs 1,350 crore under the scheme, while GoFirst had received loans of around Rs 100 crore.
Another government official said that banks have released funds to airlines at interest rates of around 8-9 percent under the scheme.
"Interest rates under the ECLG scheme were capped at 9.25 percent for banks and financial institutions (FIs), and at 14 percent for non-banking financial institutions (NBFCs)," the government had said in a press release in June.
Moneycontrol has learned from banking sources and aviation officials that large airlines in India, including Air India, IndiGo, and Vistara, are getting bank loans at interest rates between 4.5-6.5 percent.
"Air India had taken two loans of Rs 10,000 crore and Rs 5,000 crore at interest rates of around 4.5-5.5 percent at the start of 2022 from the State Bank of India (SBI) and Bank of Baroda (BoB)," an industry insider, who asked not to be identified, told Moneycontrol.
Similarly, a lawyer working for a domestic bank said that IndiGo had taken loans at interest rates of around 5 percent in the past.
High-interest rates under ECLGS puts the viability of the scheme in question at a time when airlines are struggling to make ends meet due to high aviation turbine fuel (ATF) prices.
IndiGo and SpiceJet, the two listed airlines in India, reported losses of Rs 1,064 crore and Rs 789 crore in the first quarter of 2022-23, according to their financial results.
While the government modified the scheme this month and raised the maximum loan amount airlines are eligible for under ECLGS 3.0, questions remain on what will happen if they are unable to pay off the loans on time.
"If airlines are unable to pay off the loans borrowed under the ECLG scheme, the government will have to consider writing them off or take other measures to recover the same, like selling off the airlines’ assets," the lawyer working for a domestic bank said.
The government has raised the maximum loan airlines are eligible for to 100 percent of their working capital requirements as on the application date, or Rs 1,500 crore, whichever is lower.
Of the Rs 1,500 crore, a third will be supported by equity given as collateral by the owners. These loans are fully guaranteed by the government against default.
Under ECLGS 1.0, the airlines had to repay the loans in 48 months, in 36 equated monthly installments (EMI) after a 12-month moratorium.
Similarly, for loans under ECLGS 2.0, airlines needed to repay in 60 months, in 48 EMIs after a 12-month moratorium.
Under EGLCS 3.0, airlines will be required to repay loans in 72 months, in 48 EMIs after a 24-month moratorium.