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 institutes.

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 [Get Quote] 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.

"There have been reports that a US-based airline training institute, which had many Indian students, had shut operations. The economic conditions (for aviation sector) have become uncertain and in such circumstances, banks have to be cautious in granting financial assistance for such courses," said Ananthakrishna, chief executive, Karnataka Bank [Get Quote].

The Reserve Bank of India's [Get Quote] 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, which currently range between 12-50 and 16.50 per cent. The quantum of loans for airline courses, especially pilot and other technical courses, is on the higher side.

As most of the students who take such loans are financially well off, they have the financial capability to pay back the dues, according to the credit head of a private bank.