The Federation of Hotel and Restaurant Associations of India (FHRAI) has written a letter to Finance Minister Nirmala Sitharaman, requesting to review the Kamath Committee recommendations on loan restructuring.
Moneycontrol has seen a copy of the letter sent by Gurbaxish Singh Kohli, Vice President of FHRAI, dated October 17.
The letter stated that the hospitality industry is facing serious challenges in complying with the financial parameters suggested by the KV Kamath Committee for loan restructuring.
The expert panel led by veteran banker KV Kamath was appointed by the Reserve Bank of India (RBI). The panel had in September submitted its resolution framework for stressed assets hurt by the COVID-19 pandemic.
It recommended financial ratios for 26 sectors including that lending institutions can follow while forming a resolution framework.
FHRAI is the apex body of the Indian hospitality industry, representing 55,000 hotels and 5,00,000 restaurants across the country.
In his letter, the FHRAI official has provided some objections and suggestions on the recommendations of the Kamath Committee.
Total Debt / Ebidta <= 5: During pre-COVID period itself the said ratio of average hotel industry is more than 6, Kohli stated in the letter. The existing bank sanction of the industry allows 6.5 till loan tenure.
He also stated that in order to meet the said parameters, hotels need to achieve higher financial metrics than the pre-COVID by 2022, which is not possible and practically defeat the whole purpose of providing the said relief.
TOL / ATNW <=4: The capital investment (Land / Building/Plant and Machinery) in hotels are reflected at their historical cost in the accounting books whereas the intrinsic market value of such asset is almost 2-3 times of the historical book value of that asset. A lot of hotel companies are unable to meet this criterion. Kohli said that the government needs to allow flexibility wherever the current market value of asset is considered to meet the parameter.
Current Ratio >=1: In the hospitality industry, the said ratio generally is in the average range of 0.75. Federation has requested to provide flexibility on the same.
Eligibility conditions: The conditions suggested by the KV Kamath Committee are found to be more stringent than what the banks used to have earlier, thus making the entire restructuring process a futile exercise, the letter stated.
Terminal date of loan restructuring: The Federation wants the committee to allow extension of loan for 5 years instead of 2 years.
Threshold ratios: Threshold ratios to be met need to be relaxed from March 2022 to March 2024.
The industry lobby also said that most of the hospitality companies will not able to avail the restructuring plan resulting in increased cases of insolvencies and NPAs happening in the hospitality sector.
The banks have already started debiting EMIs of establishments that are having debt exposures and even resorting to coercive tactics to collect the repayments.
Under these circumstances, FHRAI has submitted the following suggestions to the finance minister:
The association has requested a complete review of the Kamath Committee recommendations to be undertaken on a priority basis and a hospitality-specific outlook or measures may be undertaken considering the peculiarity of the industry.
Kohli also stated that in the meanwhile, a direction from the RBI or the Finance Ministry should be given to all banks and NBFCs for not taking any coercive action against any hospitality establishment for non-payment of EMIs or interests.