The hospitality industry is set to get a major boost. The Government is considering extending the “infrastructure status” to all hotel projects with capital expenditure of Rs 250 crore and above.

The principal benefit of this would be easier access to long-term funding as well as lower interest rates.

The tweaking of eligibility criteria marks a significant relaxation in the current rules that prescribe only three-star or higher category hotels located outside cities with population of more than 10 lakh to be reckoned as infrastructure projects for bank finance.

According to the Federation of Hotel and Restaurant Associations of India (FHRAI), 95 per cent of the hotels were outside the ambit of this provision.

Vivek Nair, President of FHRAI, said that the rules were counter productive. He said that the idea of lobbying for infrastructure status was that it should benefit capital intensive hotels. These hotels would get the benefit of 15-year loans and avail themselves of infrastructure bonds issued by IIFCL and IDFC, he said. He expected a notification to this effect to come up in the next two months.

This will benefit hotel projects not just in rural areas but across the country as long as the project size is Rs 250 crore, he added.

Many hotel projects have been weighed down by huge debt, forcing some of them to be shelved or change their business model. In the past two to three years, eight listed hospitality companies went for corporate debt restructuring as they were unable to meet their loan repayment commitments to banks.

“This was because of the mismatch between the cash flow and the debt service requirement. Once the new recommendations are accepted, we can replace our existing debts by long-term debts given by the institutions,” Nair said.

The Reserve Bank of India had recently allowed Indian hospitality players (with a total project cost of Rs 250 crore or more) access to the ECB (external commercial borrowing) market.

>nivedita.ganguly@thehindu.co.in

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