The gross bank credit deployment for the hospitality and tourism industry has grown by 8.2 per cent on a year-on-year basis in FY22. Industry experts believe that this increase is a depiction of the stress that the industry had faced post-Covid.
According to the Reserve Bank of India (RBI) data, in March FY21, a total of ₹59,519 crore of bank credit was deployed whereas, in March FY22, about ₹64,408 crore was deployed thus registering an 8.2 per cent increase.
The hospitality and tourism industry were among the worst impacted industries due to the rise in Covid-19 cases. In order to provide a respite for the industry players, the Finance Ministry in February 2020, included tourism, hospitality, and related industries under the Emergency Credit Line Guarantee Scheme 3.0 (ECLGS). This scheme has now been extended till March 2023.
‘Reducing financial stress’
According to Nandivardhan Jain, CEO, Noesis, the increase in the deployment of credit was large because of the ECLGS. “It is a good sign as it kept the sector afloat with additional liquidity which reduced the financial stress to some extent,” he said.
Agreeing with Jain, Chander K Baljee, Chairman and Managing Director, Royal Orchid Hotels Limited, said that the credit was not for new projects.
“The last two years were a total disaster. The government did not do anything to help out the hotel industry. Because hoteliers could not pay their dues they will take an additional loan. I would not imagine that new hotels are coming up. There could be some hotels in the finishing stage and they have taken the money. Mostly I would say it has gone towards the emergency credit,” he noted.
According to the recent HVS Anarock report, In 2021, about 193 hotel signings were made. Though this was more than the hotels signed in 2020, it was still lesser than the hotels signed in 2019 at 223 hotels.
Impact on greenfield development
The impact of Covid has also slowed down greenfield development. “As a result, the share of greenfield keys signed has declined from 39 per cent in 2020 to 32 per cent in 2021,” it said, however, the signings through brownfield projects were higher because “they are less risker”.
“Hotel investments in India have not picked up significantly post-Covid, unlike in mature hotel markets where transaction activity has been regaining ground. The sector has not yet witnessed a flurry of distress transactions as was expected as a likely outcome of the pandemic,” the report said.
“Although there are signs that investors are assessing hotel assets, buyer interest in India continues to be limited as yields remain stressed and borrowing for the sector has become even more challenging than before,” it added.
However, Achin Khanna, MRICS, Managing Partner, Hotelivate believes that while the lending is not “active”, there are certain green shoots in the industry, given that “post-pandemic is good for development and growth,” making it an opportune time for bankers to invest.
Recognising hospitality sector as infra sector
While Jain agreed with Khanna, he said that the problem in the Indian hospitality sector was much bigger. He explained that currentlythe hospitality sector is not recognised as part of the infrastructure sector.
This problem can be solved only when “the government recognises hotels with infrastructure status. This will get the hotel asset class access to cost-effective debt and a longer tenure. Hotel as an asset class is a high capex business and has a longer gestation period,” he said.
“Until or unless we don’t solve the fundamental problem of debt structure where the industry needs a tenure of 25 years. We will not see growth in this sector up to its true potential,” Khanna added.
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