Hotel Association of India urges RBI intervention to tackle financial crisis

he Hotel Association of India (HAI), which represents over 300 hotels across categories, has sought the Reserve Bank of India’s (RBI) support to tide over the financial crisis. The sector is staring at a ₹90,000 crore revenue loss in 2020, due to the coronavirus pandemic.

The current debt levels in the organized hospitality sector, which is barely 10% of the total industry, stands at ₹45,000 crore, the association said.

RBI had announced relief on loan moratorium on interest and principal repayment for six months till August. “Unfortunately, an immediate term solution will only defer the crisis as what is needed is a longer-term solution spanning the next 24-36 months. Such a strategy will solve the issue for both the stakeholders, borrower (unable to pay the interest and principal in the foreseeable future) and the lender (loans becoming non performing assets),” the association said in a statement.

HAI has sought relief measures for those companies with good credit history in the form of standard assets as of March 31. It proposed an extended tenure and a staggered approach to the applicable rate of interest in three stages for a return to normalcy. The first stage called survival phase will be across the next nine months and the second stage called revival phase would be across the following 18-24 months.

Post the revival phase, the industry needs lending at a marginal cost of funds-based lending rate (MCLR) as the market improves and performance of the industry reaches 50-70% of pre-COVID levels which is expected to take over 30 months from now.

The COVID-19 pandemic has led to demand destruction in excess of 90% for the tourism and hospitality sector which employs nearly 4.5 crore people. Providing livelihood to around 16 crore people, the industry contributes 9% to India’s GDP. In view of hotel demand being extinguished as it is highly discretionary, the trend has further been exacerbated by the absence of air travel, corporate restrictions, cancelation of holidays, state lock-downs and imposition of quarantine on travellers.

The industry body said around 70% of hotel’s costs are fixed in nature with expenses mostly towards payroll and government levies. Hotels are capital intensive with a long gestation period whereas debt offered is typically short term and high cost rendering which has made the sector highly sensitive to demand destruction.

“The negative outlook on the industry has further made it unattractive for lenders, leading to a liquidity crunch and increased rates of interest to cover for the perceived risk,” HAI noted.