Hotels in discussion with banks on loan recast after moratorium ends

Hotels are in talks with banks on a three-pronged approach on paying principal and interest after the moratorium of six months the Reserve Bank of India (RBI) has given is over by September.

For one, hotels with standard loans are in discussion with banks on increasing their terms by another 12 months. 

On average the terms of loans for the industry are six-seven years. This will require the RBI’s endorsement.

The second approach is to allow hotels with a good track record to spread the payment of the outstanding principal and interest due for the six-month moratorium period over 12 months and in equated instalments.

The third approach, which is mostly for hotel companies that are not standard accounts, is for banks to insist on a bullet payment of the interest and the principal due in the moratorium period once the period is over.  It has suggested that interest be added to the principal outstanding. 

The move comes hard on the heels of The Hotel Association of India (HAI), the apex body of the industry, saying in a communication to the RBI as much as 50 per cent of the Rs 45,000 crore that branded hotel companies had taken as loans (such companies constitute 15 per cent of the 2.8 million hotels in the country) would become non-performing assets (NPAs) in the next few months.

The body has also made it plain that it does not see recovery in 30-36 months. After that it expects hotel room occupancy to reach 50-70 per cent of the pre-Covid levels. 

It has also asked the regulator to come up with concessional interest rates for the next 18-24 months. That would make the rate 6 per cent instead of the average of 9 per cent they pay. The interest rate should be the repo rate plus 200 bps. In the third phase it wants interest rates to be pegged to the marginal cost of lending rate.

The average occupancy rates of hotels have fallen to 20-25 per cent. What is more challenging is that average hotel tariffs for branded hotel chains have halved from Rs 8,000 to Rs 4,000 per night.