Indian hospitality industry will collapse if not backed by government and RBI: HAI
The association said four key factors work in tandem against the sector: First, hotel demand has been extinguished and this has been exacerbated by the lack of air travel, corporate restrictions, cancellation of vacations, state blockades and the imposition of quarantine on travelers. . Second, 70% of hotel costs are fixed in nature, mainly for payroll costs and government levies. Third, hotels are capital intensive with a long gestation period whereas the debt offered is generally short term and high cost, making the industry very susceptible to the destruction of demand. Finally, the negative outlook for the industry made it unattractive to lenders, resulting in a shortage of liquidity and an increase in interest rates to cover perceived risk.
“An immediate solution will only postpone the crisis as what is needed is a longer term solution covering the next 24-36 months that resolves both parties: the borrower (unable to pay interest and principal in a foreseeable future) and the lender (loans become non-performing assets), âHAI said.
The association recommends relief for companies with a good credit history, that is, standard assets as of March 31, 2020. For the survival phase, which spans the next nine months, it offers a extension of the moratorium on interest and principal repayment for the full 2021 financial year.
HAI Secretary General Bezbaruah said that for the stimulus phase (after 18-24 months), a short-term interest rate subsidy will allow the sector to revive so that it begins to move towards pre-Covid levels. “We are offering an interest rate @ pension rate + 200 basis points. The lending institution can fund this by borrowing from the RBI …% of pre-Covid levels that are expected in more than 30 months.”