Banks will be inclined to lend more to the hospitality sector as three-star and above category hotels located within cities with population of more than 10 lakh are likely to get ‘infrastructure’ tag, said a top banker.

Indian Overseas Bank Chairman and Managing Director M Narendra said once the hospitality industry gets the infrastructure status, then top-grade hotels will be eligible for long-term loans of 10-15 years duration.

Current norms

Banks normally give term loans of 6-7 year duration for hotel projects, which are in the three-star and above category.

Currently, three-star or higher category hotels located outside cities with population of more than 10 lakh are reckoned as infrastructure projects for bank finance. The Government is considering tweaking the definition of infrastructure pertaining to hotels, said Narendra.

At a press meet last month, S. Vishvanathan, Managing Director, State Bank of India, pointed out that while the capacities were getting built up, for example in the hotel industry, banks gave loans for 7-8 years and not for 10-15 years as is done abroad.

“At that point in time, given the kind of flows (business) that we were expecting, this seven-year period was viable. The whole system was gung-ho. We said within the norms that were available at that point in time the companies could service the loans within the seven-year period,” said the SBI MD.

However, what happened was that there were certain delays in commissioning (of the hotel projects), there was lesser traffic compared to what was assumed and all these things put pressure on repayment.

“And they came to us for lengthening of maturity, that is, restructuring. There are strict RBI norms pertaining to restructuring and all these rules were applied,” said Vishvanathan.

ramkumar.k@thehindu.co.in

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