“This is a framework which will be sent by RBI to banks. And then the question is of transmission which has been left to bank boards because the bank board determines the policy. Speaking on HAI’s behalf, at least half of the hotels in India will need this relief if not two thirds not because of poor business performance but because of a black swan event. We hope the banks will genuinely implement this framework and will save the sector,” he added.
The RBI appointed committee headed by banker KV Kamath has sector specific benchmarks on five financial parameters for banks for taking a decision on restructuring: Total outside liabilities/adjusted tangible net worth, total debt/Ebitda, current ratio, debt service coverage ratio, average debt service coverage ratio.
“The various ratios as worked out have taken into consideration real time needs of the industry and banking system, keeping in mind practical approach and required level of leverage to such ailing sector due to the impact of Covid -19,” said Nirmal Gangwal, Founder and Managing Partner, Brescon Advisors, a boutique investment banking firm, which specialises in Corporate Debt Resolution.
Nandivardhan Jain, CEO of hospitality advisory firm Noesis Capital Advisors said recovery for hotels to pre Covid levels before 3-4 years will be tough. “Hoteliers with cash flow constraints because of low business should possibly get relief from the moratorium point of view for two years. But they have mentioned the maximum tenure as two years. That is sticky because businesses will take 3-4 years to recover and if we are not increasing the tenure of the debt, it is a stop gap arrangement. There is a need for increasing the tenure for hotels which are highly leveraged,” he added.
Indian Association of Tour Operators (IATO) president Pronab Sarkar said tour operators will be in the wait and watch mode. “Bankers think it is a high risk sector. It remains to be seen how this will pan out. No tour operator will take fresh loans to pay off salaries and other expenses. How will I repay the interest. There is no new business for us.” Aashish Gupta, consulting CEO of industry body Federation of Associations in Indian Tourism and Hospitality (FAITH) said the FAITH had highlighted the distress of the sector to the KV Kamath committee.
“RBI has advised the banks that accounts can be classified on the basis of mild to severe category. Since tourism is the worst hit and cash flows are not expected to start in serious earnest from a break-even perspective at least till next year, we have advised everyone to work with their bankers to take the maximum restructuring possible by getting themselves classified under the severe category because that’s where everybody is.”