The government’s recent decision to expand the Emergency Credit Line Guarantee Scheme (ECLGS) came as a lifesaver to the beleaguered hospitality sector. Many hotels, which are highly leveraged, have been badly battered by the pandemic.
By relaxing the eligibility criteria in ECLGS 4.0, more smaller and medium enterprises from the industry can avail loans for longer tenures. The scheme’s validity has also been extended from 13th May till 30th September 2021 or till guarantees for an amount of INR 3 trillion are issued. The government added that disbursement under the scheme would be permitted up to 31st December 2021.
Dr. Jyotsna Suri, Executive Committee Member, Hotel Association of India (HAI) and Chairperson and MD, Bharat Hotels Ltd tells Vinita Bhatia how this move will help industry players to manage their cash flow better in this difficult time. She also elaborated on why the industry is seeking an infrastructure status.
Why is the hotel industry seeking an infrastructure status?
Providing accommodation to domestic or international travellers, hotels play a vital role in the development of India’s tourism business. Currently, the country is under-roomed as compared to its neighbours. It requires more rooms to meet the growth targets outlined to meet its share of international and domestic tourist visits.
However, this is a capital-intensive industry with a long gestation period. To gain access to funds of high magnitude, the sector needs to be eligible for better tax incentives and concessions.
Granting an infrastructure status will give hotels access to funds at lower costs and better repayment terms as is currently available to ports, highways, railways, etc, which fall under this category. This will encourage better investments in this domain.
What is the proposed project cost slab sought for higher inclusion of industry members?
It is recommended that hotels with over INR 25 crore Capex (excluding land) should have infrastructure status. This will enable development of more hotels across all categories, ranging from budget properties to luxury establishments.
In March 2021, the government announced a special ECLGS 3.0 for eligible enterprises in the hospitality and travel sector and recently updated it. How can this restructured scheme help the industry, which has been worst affected by the pandemic?
The industry welcomes this step, which has provided additional 20% credit facility under the special ECLGS 3.0 and extended the moratorium period from one year to two. ECLGS 4.0 removed the earlier cap of INR 500 crore on the debt and allowed assistance to a borrower to 40% or INR 200 crore, whichever is lower. This will help more hotel companies to avail the scheme and manage their cash flow better in this difficult time.
How is the eligibility criteria decided for companies who can avail of up to 40% of outstanding credit?
The eligibility criteria are same as it was in ECLGS 2.0. Additional security or charge will not be extended on the existing security. The government of India is providing guarantee on the scheme.
Will this step encourage banks and financial institutions to extend additional capital to the hospitality sector in current times?
Banks and financial institutions are very aggressive about extending additional loan to the hospitality sector. In the case of our hotels, we could avail ECLGS 3.0 from the bank.
The ongoing pandemic devastated the hospitality sector. It had started recovering on the strength of domestic tourism and intimate get-togethers in Q42021. However, the second wave, which was more severe, arrested this growth.
Now, there are predictions about a third wave. This means that travel is unlikely to pick up anytime soon. Even domestic tourism will suffer on account of local lockdowns, night curfews, etc.
The sector will, therefore, take long to recover and will probably be the last amongst all industries. Considering this uncertainty, hotels are nervous about the current payback plan and availing of this scheme.
Will a 4-year moratorium and a 6-year repayment plan, making it a 10-years payment plan, be a more a viable option for hotels and restaurants?
Hoteliers are concerned about the moratorium period on interest on funds drawn under this scheme. It will really help hotel industry if government extends a 4-year moratorium instead of 2-year moratorium and a 6-year repayment plan instead of 4-year repayment plan.
HAI has sought a stimulus package that subsidises salaries of hotel employees. How can the government extend this in a tangible fashion?
Many hospitality establishments continued paying their staff on humanitarian grounds, even though they have no resources at hand. However, continued lack of business makes this burden unbearable, which could lead to large-scale retrenchment.
Many countries have provided this support to employees as part of their economic recovery programmes and there are several examples of implementing such a package. The government can draw from the best global practices and customise it to what would be the most suited to conditions in India.
