Indian hotel sector will collapse if not backed by government and RBI: HAI


On behalf of the Indian hotel sector, the Hotel Association of India (HAI) recommended more relief measures for the survival, revival and prosperity of the sector to the mutual benefit of industry, RBI and the national economy.

The COVID 19 pandemic has caused over 90% destruction of demand for the tourism and hospitality sector which employs nearly 4.5 crore people; provides livelihoods to around 16 million people and contributes 9 percent of India’s GDP. A recent McKinsey study identified airlines and hotels as the worst affected industry in India; with a production decline of around 75 percent in the first quarter of FY21 compared to the fourth quarter of FY20. In addition, the hotel sector is in the list of tight sectors on the coverage ratio of the debt service. The loss of revenue for the hospitality industry is expected to be in the order of Rs. 90,000 crore in 2020.

While the RBI announced an immediate deadline to avoid the crisis by allowing relief from the moratorium on interest loans and principal repayment for 3 months (later extended to 6 months, but this will only help the industry. ‘to survive in the short term, which may not be enough for the rebirth and subsequent boom in Indian hospitality which has reached great heights globally for its standards of service.

On behalf of the Indian hotel sector, the Hotel Association of India (HAI) recommended more relief measures for the survival, revival and prosperity of the sector to the mutual benefit of industry, RBI and the national economy.

The four key factors work in tandem against the hotel industry today:

* Hotel demand has died out because it is very discretionary. This has been exacerbated by the lack of air travel, corporate restrictions, cancellation of vacations, state closings and the imposition of quarantine on travelers.

* 70 percent of hotel costs are fixed in nature, primarily for salary expenses and government levies.

* 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.

* The negative outlook on the industry made it unattractive to lenders, resulting in a shortage of liquidity and rising interest rates to cover perceived risk.

The hospitality industry is now focused solely on survival and has asked the RBI to expand more proactive support. The current debt level of the organized part of the industry (which represents less than 10 percent of the total) stands at Rs 45,000 crore. Unfortunately, an immediate term 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 the interest and the principal for the foreseeable future) and the lender (the loans becoming NPAs).

In this regard, HAI recommends relief – for companies with a good credit history, ie Standard Assets as of March 31, 2020. As an umbrella body, only focused on the hospitality industry and hospitality, it proposes an extended term and a phased approach to interest rates in which there will be the three stages for a return to normalcy:

* Survival phase (next 9 months): The moratorium on interest and principal repayment is extended for the whole of fiscal year 21, i.e. until March 31, 2021, the interest due is added to the Total Principal Outstanding and the loan period extended by 12 months. This will resolve the current cash shortage as there is expected to be almost no demand for FY21.

* Rebirth phase (after 18-24 months): Interest rate @ Repo rate + 200 bps: the lending institution can finance this by borrowing from the RBI without paying.

* Prosperity phase: At MCLR, as the market improves and industry performance reaches 50-70% of pre-COVID levels (predicted for over 30 months).


Christina A. Kroll