Credit and Finance for MSMEs: The industry body FHRAI noted that the absence of a favourable policy would lead to the shutdown of nearly 40 to 50 per cent restaurants and 30 to 40 per cent hotels that would further result in millions of job losses.
Credit and Finance for MSMEs: Ahead of a possible state-wise lockdown amid the growing number of Covid cases in the country, the pandemic-battered small and midsize enterprise-dominated hospitality sector is seeking a sector-specific loan restructuring plan from the government to avoid becoming non-performing assets (NPAs). Engulfed in losses amid the lockdown period, hotels and restaurants represented by the industry body Federation of Hotel & Restaurant Associations of India (FHRAI) have sought restructuring exercise similar to that for MSMEs. In August, the Reserve Bank of India (RBI) had extended the provision of restructuring of MSMEs loans up to Rs 25 crore to be implemented by March 31, 2021, from earlier December 31, 2020. The hospitality sector accounts for 12.75 per cent of India’s employment out of which 5.56 per cent is direct and 7.19 per cent indirect.
“Conservative projections show estimated revenues of only Rs 36,400 crore against total revenue of Rs 1.82 lakh crore in FY 2019-20. This translates to a revenue loss of Rs 1.14 lakh crore…under such a scenario, the hospitality sector needs government support through a sector-specific loan restructuring plan. This will save many small and medium-size businesses from imminent and permanent closure,” said Pradeep Shetty, Joint Secretary, FHRAI.
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According to the RBI’s November bulletin, the gross bank credit deployed to tourism, hotels, and restaurants as a sector grew 19.7 per cent to Rs 48,378 crore in September 2020 from Rs 40,419 crore in September 2019 and 5.2 per cent in the financial year 2020-21 from Rs 45,977 crore in March 2020. Nonetheless, Gurbaxish Singh Kohli, Vice President, FHRAI argued that the total value at risk to the entire economy is close to Rs 10 lakh crores with more than 50 per cent job losses within the industry. “There is a justifiable fear that most of the hospitality businesses companies in this industry would be unable to service their financial obligations and eventually slip into the most distressed category.”
“The hospitality and tourism sector of India is not a risk to the Indian banking system and it needs to be protected to prevent its assets from becoming non-performing. With existing travel restrictions, in February 2020, 1.01 million foreign tourists arrived in India compared to 1.08 million in February 2019, registering a year-on-year decrease of 6.6 per cent already. Since then, until date, there are no foreign tourist arrivals and are not expected anytime in the near future with fears of a second wave,” said Gurbaxish Singh Kohli, Vice President, FHRAI. The federation represents 5 lakh restaurants and 55,000 hotels in India.
The federation noted that the absence of a favourable policy would lead to the shutdown of nearly 40 to 50 per cent restaurants and 30 to 40 per cent hotels that would further result in millions of job losses. FHRAI had in September informed the Finance Ministry’s Principal Economic Advisor Sanjeev Sanyal over a webinar about the “reservations and non-cooperation of banks in extending the one-time restructuring of loans announced by the government.”