India’s hospitality sector will collapse if not supported by government and RBI: HAI

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

The COVID 19 pandemic has resulted in a demand destruction of over 90% for the tourism and hospitality sector which employs almost 4.5 Crore people; provides livelihood to around 16 million people and contributes 9% of India’s GDP. A recent study by McKinsey identified airlines and hotels as the most affected sector in India; with production down approximately 75% in the first quarter of FY21 compared to the fourth quarter of FY20. the debt. The revenue loss for the hospitality industry is expected to be in the range of Rs. 90,000 crores in 2020.

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

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

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

* Hotel demand has been extinguished as it is highly discretionary. This situation has been exacerbated by the absence of air travel, restrictions on businesses, cancellation of holidays, state closures and the imposition of quarantine on travellers.

* 70% of hotel costs are fixed in nature, primarily for payroll and government levies.

* Hotels are capital-intensive with a long gestation while the debt offered is usually short-term and high-cost, making the industry highly susceptible to demand destruction.

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

The hospitality industry is now focused solely on survival and has asked the RBI to extend its more proactive support. The current level of indebtedness of the organized part of the industry (which accounts for less than 10% of the total) stands at Rs 45,000 crore. Unfortunately, a short-term solution will only postpone the crisis, because what is needed is a longer-term solution covering the next 24 to 36 months, which solves the problems of both parties: the borrower (unable to pay interest and principal for the foreseeable future) and the lender (loans become NPAs).

In this regard, HAI recommends relief – for companies with a good credit history, i.e. Standard Assets as of March 31, 2020. As an umbrella body, solely focused on the hospitality industry and of reception, it proposes an extended term and a staggered approach to the applicable interest rate in which there will be the three stages for a return to normal:

* 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 outstanding principal and the loan term is extended by 12 months. This will solve the current cash crunch as there is expected to be almost no demand for FY21.

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

* Growth phase: At MCLR, as the market improves and industry performance reaches 50-70% of pre-COVID levels (expected 30+ months).

Christina A. Kroll