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    Indian hotel industry will collapse if not supported by the govt and RBI: HAI

    Synopsis

    "An immediate term solution will only defer the crisis as what is needed is a longer-term solution spanning the next 24-36 months which solves for both stakeholders: the borrower (unable to pay the interest and principal for the foreseeable future) and the lender (loans becoming non performing assets)," HAI said.

    The association is recommending relief for those companies with good credit history i.e. standard assets as of March 31, 2020.
    HAI said revenue loss to the hotel industry is expected to be to the tune of Rs 90,000 crore in the year 2020 and the current debt levels in the organized part of the industry (which is less than 10% of the total) stand at Rs 45,000 crore. It said the hotels sector features in the list of strained sectors on debt service coverage ratio and while the RBI has provided relief on loan moratoriums on interest and principal repayment for three months which was later extended to six months, that will only help the industry survive in the short term.

    The association said four key factors are working in tandem against the sector: Firstly, hotel demand has been extinguished and that was exacerbated by the absence of air travel, corporate restrictions, cancelation of holidays, state lock-downs and the imposition of quarantine on travellers. Secondly, 70% of the hotel costs are fixed in nature, mostly towards payroll expenses and government levies. Thirdly, hotels are capital intensive with a long gestation whereas debt offered is typically short term and of high cost, rendering the sector highly sensitive to demand destruction. Lastly, the negative outlook on the industry has made it unattractive for lenders leading to a liquidity crunch and increased rates of interest to cover for the perceived risk.

    "An immediate term solution will only defer the crisis as what is needed is a longer-term solution spanning the next 24-36 months which solves for both stakeholders: the borrower (unable to pay the interest and principal for the foreseeable future) and the lender (loans becoming non performing assets)," HAI said.

    The association is recommending relief for those companies with good credit history i.e. standard assets as of March 31, 2020. For the survival phase, spanning the next nine months, it is suggesting an extension of the moratorium on interest and repayment of principal for the entire financial year 2021.

    MP Bezbaruah, secretary general at HAI said for the revival phase (following 18-24 months) an interest rate subsidy in the short term will enable revival of the sector so that it starts moving towards pre Covid levels. "We propose interest rate @ repo rate + 200 bps. The lending institution can fund this by borrowing from RBI...For the thrival phase post revival, lending can be at MCLR as the market improves and performance of the industry reaches 50-70% of the pre Covid levels which is expected in over 30 months."
    (Catch all the Business News, Breaking News Events and Latest News Updates on The Economic Times.)

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    1 Comment on this Story

    Garry 60 days ago
    many have already lost the job and if some are on the payroll they are not getting salary. Govt needs to think about hospitality sector too.
    The Economic Times