Moratorium, ECLGS helped hospitality units but sustenance of demand pickup remains to be seen: ICRA

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October 03, 2021 1:08 PM

Credit and Finance for MSMEs: Businesses in hospitality, travel & tourism, leisure & sporting sectors, which had previously not availed ECLGS, can now avail credit support up to 40 per cent of their credit outstanding as of March 31, 2021, to the maximum of Rs 200 crore per borrower, according to the latest modifications in the scheme.

covid impact on hotelThe sector, which has a number of MSMEs and small businesses, witnessed recovery at a 'sharper pace’ post the second wave in comparison to the lockdown in 2020 due to relaxations in restrictions in Q2 FY22.(Representative image)

Credit and Finance for MSMEs: The moratorium and emergency credit scheme ECLGS had provided the much-needed financial support during Covid-19 to the hospitality sector even as the sustenance of the demand pickup in the recent months remains to be seen as the impact of a potential third wave cannot be ruled out, according to credit rating agency ICRA. Around 70 per cent of the businesses in the agency’s hospitality portfolio had availed moratorium during the first wave of the pandemic last year, though it was only 39 per cent of rated debt.

ICRA said it continues to have a negative outlook on the Indian hotel industry, “as the sustenance of the demand pickup in the recent months remains to be seen. A potential third wave and its impact on travel and hotel occupancies cannot be ruled out. Further, the revenue per available room (RevPAR) is still significantly lower than pre-Covid levels. About 63 per cent of ICRA’s ratings are also on negative outlook currently,” ICRA said in a recent statement. The industry had raised around Rs 660 crore of equity in FY2021 and had announced Rs 3,300 crore of equity/fundraising plans in FY2022.

The sector, which has a number of MSMEs and small businesses, witnessed recovery at a ‘sharper pace’ post the second wave in comparison to the lockdown in 2020 due to relaxations in restrictions in Q2 FY22. While partial lockdown, as well as travel restrictions in many states in April and May 2021 following Covid 2.0, led to ICRA sample of companies reporting a 56 per cent decline in their revenues on a quarter-on-quarter basis, in line with the ratings agency’s estimates, however, the latter said that the revenues are expected to improve by 85- 90 per cent sequentially in the recently concluded Q2 FY2022.

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“Demand in the last few months has come from staycations, weddings, and travel to driveable leisure destinations, and from special-purpose groups. There is the new trend of biscations (which is working from a resort) that is picking up. Business travel pickup has been mainly to project sites/manufacturing locations from specific sectors. The Covid-related demand which was prevalent April mid to June mid, waned from July and we are seeing real demand pick up,” said Vinutaa S, Assistant Vice President and Sector Head, ICRA Limited.

The Finance Ministry in March this year had extended the ECLGS scheme to cover businesses in hospitality, travel & tourism, leisure & sporting sectors which had, as of February 29, 2020, total credit outstanding up to Rs 500 crore and overdues, if any, for 60 days or less, on that date. The scheme, which primarily caters to MSMEs, has now been extended till March next year. Over Rs 2.86 lakh crore ECLGS loans were sanctioned as of September 24, 2021, while out of total guarantees issued, about 95 per cent were for loans sanctioned to MSMEs, the ministry had said in its statement on Wednesday.

Importantly, businesses in hospitality, travel & tourism, leisure & sporting sectors, which had previously not availed ECLGS, can now avail credit support up to 40 per cent of their credit outstanding as of March 31, 2021, to the maximum of Rs 200 crore per borrower, according to the modifications announced by the ministry in the scheme on Wednesday.

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