What changed
Previously, AD Category-I banks could only allow payment of lease rentals and security deposits for aircraft operating leases, and issue 'no objection' for charges/guarantees for general ECB. This circular extends that 'no objection' facility specifically to corporate guarantees for operating leases of aircraft, engines, or helicopters. Banks must now ensure the guarantee period is co-terminus with the lease and obtain a board resolution from the guaranteeing company.
What it means for you
Indian airlines and lessees can now more easily secure aircraft on operating lease by offering corporate guarantees to foreign lessors, reducing reliance on cash deposits or letters of credit. For banks, this streamlines the approval process under FEMA but requires careful verification of board resolutions and lease alignment. It may increase demand for such guarantees, boosting fee income but also contingent liability exposure.
What you must do
- Update internal FEMA compliance checklists to include corporate guarantee issuance for aircraft operating leases.
- Verify that the corporate guarantee period is exactly co-terminus with the operating lease period before conveying 'no objection'.
- Obtain and retain a certified copy of the board resolution authorizing the guarantee, specifying authorized signatories.
- Clearly state in the 'no objection' letter that it is only from a foreign exchange angle and does not replace other statutory approvals.
- Train staff handling trade finance and ECB to distinguish this facility from general ECB guarantee norms.
Who it affects
AD Category-I banks, Indian airlines and aircraft lessees, Overseas lessors of aircraft/engines/helicopters, Corporate guarantee issuers (parent companies of lessees)
Does this circular allow personal guarantees for operating leases?
No, it specifically permits corporate guarantees only. Personal guarantees are covered under the earlier circular (A.P. DIR Series Circular No.01 dated July 11, 2008) for general ECB, but this circular does not extend that to operating leases.
What documents must a bank obtain before conveying 'no objection'?
A board resolution from the company issuing the guarantee, naming the authorized officials, and confirmation that the guarantee period matches the lease period exactly.
Does this 'no objection' cover other regulatory approvals?
No, it is only from a FEMA angle. The applicant must still obtain any required approvals from other authorities like DGCA or income tax.