The Reserve Bank of India (RBI) move to extend ₹15,000 crore liquidity window to support the tourism and hospitality sectors may only provide a short-term boost as the industry is already laden with a debt of over ₹50,000 crore.
Karan Khanna, Vice President at Ambit Capital said the additional liquidity will not move the needle much from the hospitality sector’s perspective. He explained that the RBI has offered a slab of ₹15,000 crore whereas “loans outstanding for the hospitality sector today are totalling more than ₹50,000 crore.”
Travel and hospitality industry apex bodies, the Travel Agents Association of India (TAAI) and the Federation of Associations in Indian Tourism & Hospitality (FAITH) in a joint statement said that while it could have a short-term benefit to the ailing industries, just one of the several requests made by the industry has been met by the RBI, and that to partially.
The liquidity window of ₹15,000 crore is being opened till March 31, 2022, with tenors of up to three years at the repo rate. However, the industry bodies had requested it till at least 2024 “considering that this sector is the worst hit and recovery will only happen by then.”
However, Khanna was not positive about the fact on whether the banks would be willing to lend to these sectors, given the uncertainties.
Ailing sector
KB Kachru, Vice President of the Hotel Association of India, said that the provisions at least acknowledged the fact that the hospitality and tourism industry are extremely stressed. “It has given an additional lease of life to several hospitality establishments that are on the brink of closure. Ailing hotels will be able to save related jobs, lives and livelihoods. Hotel loans are less likely to become NPAs,” he explained.
Players like Cleartrip and MakeMyTrip believe that these efforts could have at least a short-term benefit to the ailing industries.
According to Jyoti Prakash Gadia, Managing Director, Resurgent India, the impact on this sector has been drastic with a reduction in revenue from around 2 lakh crore two years ago to less than ₹40,000 crore as per recent estimates.
Given the current scenario, the measures announced by the government and RBI are meagre, the experts said.
Recently, the government had included the aviation industry under its sovereign-backed Emergency Credit Line Guarantee Scheme (ECLGS) programme.
Vinutaa S, Assistant Vice President and Sector Head, ICRA Ltd explained, given the inherent stress, in the hospitality space and the fact that credit risk will continue to remain with the banks unlike with ECLGS, “the actual benefit for the sector from the aforesaid liquidity window remains to be seen."
Gadia said that the financial parameters like debt-equity ratio, debt service coverage ratio needed further relaxations by lenders in comparison to existing specifications to really help the sector with additional funds now announced.
He explained that the long-term solution, however, “lies in the creation of sustained demand through a revival of the economy and overall purchasing power of citizens.”