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Loan restructuring – A make or break factor for hospitality industry: FHRAI
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Wednesday, 25 November, 2020, 08 : 00 AM [IST]
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Our Bureau, New Delhi
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The hospitality enterprise has started to stir after a near eight-month sabbatical. While many hotels and restaurants reopened to customers after the lockdown was lifted, quite a few did not and presumably; these may not reopen at all. The apex association of hotels and restaurants in the country - Federation of Hotel and Restaurant Associations of India (FHRAI) has stated that nearly 25 per cent of businesses will permanently shut down before the end of the current financial year. Hospitality establishments are struggling due to uncertain business conditions on account of restriction on Foreign Tourist Arrivals (FTAs), shortage of labour, apprehensive domestic travellers and most importantly, with no access to working capital.
Gurbaxish Singh Kohli, Vice President, FHRAI, said, “The pandemic enforced lockdown has broken the back of the hospitality industry. Reopening for business has brought us minor relief today but even this could be short lived. It’s festival time and things may look optimistic now but the threat of Covid-19 still looms large over us all. As we speak, the UK is under complete lockdown once again. So, to assume that things have gone back to normal wouldn’t be prudent at this time. The hospitality industry anticipates poor business for at least another year and until then, to keep it afloat, it needs working capital. Today, sustaining is extremely crucial because if the industry is allowed to wind up, rebuilding it will prove to be an even bigger challenge.”
Hospitality is a capital and labour intensive industry with high gestation periods and perishable commodities and services. The business dynamics are unique and so are its challenges. The FHRAI has specified that banks fail to note this underlying difference between hospitality businesses and businesses from other sectors.
G S Virk, MD, Park Plaza – Chandigarh, said, “The hospitality industry is denied a benefit offered by the Government simply because it doesn’t fit the pre-defined conditions for loan restructuring. The biggest hurdle that the industry faces under such terms is the RBI directive which expects an account to be regularized as of March 2020 without which the establishment cannot avail loan restructuring. The hospitality sector’s predicament here is that March is off-season for business and during this period most accounts are almost never in the SMA-0 class. Most hospitality players are able to regularise the book of accounts only during or after the holiday season. This has become a barrier for Hospitality players to even qualify for the loan restructuring.The nature of our business is uniqueand unfortunately because of this, we are deprived of a benefit specifically offered to rescue us.”
To resolve this anomaly, the hospitality industry is of the opinion that banks should instead analyse an establishment’s cash flow and take into consideration its assets as parameters to qualify for loan restructuring.
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