The aviation sector anticipates fiscal policies supportive of aircraft leasing industry In December 2023, when the global leasing watchdog Aviation Working Group (AWG) downgraded India from positive to negative, it shocked many Indian air carriers. The primary reason for the negative ranking was the delay faced by foreign lessors in repossessing aircrafts. The downgrade is anticipated to raise the cost of leasing plans for India’s commercial airlines. In India, with its anticipated increase in demand for aviation service providers, developments related to aircraft leasing hold significant importance. As emphasized by PricewaterhouseCoopers in its report, ‘Aircraft Leasing in India: Ready to Take Off,’ approximately 80 percent of the total commercial fleet in India is leased, compared to 53 percent globally. “Despite leading airlines in India placing substantial orders for new airplanes, the delivery of orders is a gradual process, and the surge in air travel in India will definitely prompt more airlines to engage in leasing to expand their operational fleet. This increase in leasing activities calls for some key fiscal incentives from policymakers,” says Jaideep Mirchandani, group chairman of aviation major Sky One, ahead of the announcement of the financial budget for the years 2024-25. Regarding the anticipated measures, Mirchandani highlighted one of the key aspects—the necessity to explore the introduction of tax incentives, including reduced corporate taxes or tax credits for both lessors and lessee airlines. “There is a need to streamline regulatory processes, making it easier for lessors to operate in the Indian market. One area for improvement is the taxes on jet fuel – it is the single biggest cost, often more than half the expenses for some Indian low-cost carriers. High fuel costs and depreciation of the Indian rupee will always have a huge impact on the sector and the policies should address that,” he added. Recently, the Government has exempted leased aircraft and engines from the moratorium under the provisions of the Insolvency and Bankruptcy Code (IBC). However, since the matter is sub-judice, lessors will have to wait for appropriate directions from the Court before proceeding further. “Such situations also highlight the need for bridging the impediments in aircraft recovery and repossession procedures. The removal of discrepancies between global and local legalities is sure to make it easier for the market to operate and grow,” says Mirchandani. He also pointed out the critical importance of the effective implementation of the Cape Town Convention (CTC) in the present situation. The CTC provides a framework for addressing airline defaults and insolvencies, enabling lessors to recover airplanes within 60 days in insolvency cases. There is a collective call from various leasing companies for India to legalize and enforce CTC provisions in alignment with the country’s declaration at CTC. “India, with its rapidly expanding aviation sector, is emerging as a key global aircraft leasing hub. To further attract international lessors to the country, there is a need for favourable fiscal policies, exploring standardized procedures for lease agreements to enhance transparency and efficiency for both lessors and lessees,” he added.
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In its consultation paper, Sebi has suggested that trustees of mutual funds should focus on market abuse by AMC, its employees and mis-selling by the AMC to increase the asset base.
Also, trustees should be responsible for fairness of fees and expenses charged by the AMC, compare its performance with peers and ensure that AMC’s sponsor is not getting any undue advantage.
In addition to the core areas, the trustees should be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.
Further, Sebi has suggested that trustees and their resource persons should independently evaluate the extent of compliance by AMC and not merely rely on AMC’s assurances.
To facilitate trustees’ supervision, AMCs should provide them with analytical information.
Presently, the trustees primarily rely on the AMCs for ensuring compliance with the applicable rules.
Under the rules, trustees hold the property of the mutual fund in trust for the benefit of the unitholders. The trustees appoint an AMC to float schemes for the mutual fund and manage the funds mobilised under various schemes, in accordance with the investment objectives.
“In view of the increasing scale and reach of the mutual fund industry, trustees’ role in respect of unitholders’ protection assumes even greater significance,” Sebi said on Friday.
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Over the past decade there has been a five-fold increase in the size of the mutual fund industry. The assets under management (AUM) has surged from Rs 7.93 lakh crore in November 2012 to Rs 39.89 lakh crore in December 2022.
To ensure that trustees devote time and attention to their core responsibilities, Sebi has suggested that for fulfilling other responsibilities, trustees may rely on professional firms such as audit firms, legal firms, merchant bankers for carrying out due diligence on their behalf.
The Sebi also listed some duties trustees can delegate to AMCs. This include ensuring that all systems are in place prior to the launch of any scheme by the AMC, and calculating any income in the mutual fund due to the fund and any income received in the mutual fund for unitholders.
The regulator has proposed to provide a one year time to existing trustees with board of trustee structure to convert into a trustee company, from governance point of view.
Presently, two structures for trustees are permitted — corporate and board of trustees structure. Moreover, there are a few mutual funds which have the board of trustees structure while the trustees of all other mutual funds have adopted the structure of a trustee company.
Considering the enhanced role of trustees over the period of time, Sebi has suggested to increase the minimum number of trustees to adequately perform their functions. Presently, the minimum number of trustees prescribed is four.
Also, it has been proposed that the chairperson of the trustee company should be an independent director.
Sebi has suggested that apart from the meeting of the audit committee of AMCs and trustees (which mostly comprises of independent directors), the board of AMCs and the board of trustees may be mandated to meet at least once a year to discuss the issues concerning the mutual funds.
The regulator proposed that the existing MF Regulations on AMC and its obligations may be amended to include additional clauses with respect to the obligations of the board of AMC.
The proposed amendment may include a clause which casts an obligation on the board of AMC to ensure that all the activities of the asset management company are in accordance with the provisions of these regulations.
The Securities and Exchange Board of India (Sebi) has sought comments from public till February 24 on these proposals.