While lauding the government’s move to set up the Kamath Committee, the Hotel & Restaurant Association of Odisha explains how the recommendations of the committee would result in borrowers slipping into the NPA category

The government’s move to set up an expert committee, headed by KV Kamath, to make recommendations on the necessary financial parameters in context of the Resolution Framework for Covid-19 related stress, has been a welcome move.

However, the Hotel & Restaurant Association of Odisha (HRAO) has expressed concern at the fact that the recommendations of the Kamath Committee place the hotel industry on a par with the other sectors, which in current times is not a practical approach.

In a letter to the Governor of Reserve Bank of IndiaShaktikanta Das, and the Union Finance Minister, Nirmala Sitharaman, the association states, “The recommendations of the Kamath Committee should not be thrust upon the hotel industry for obvious reasons as it is likely to result in borrowers not meeting the financial benchmarks and eventually slipping into the non-performing category.”

JK Mohanty, Chairman – Hotel & Restaurant Association of Odisha and IATO Eastern Region, in the letter mentions that the recommendations of the committee-proposed thresholds for current ratio, DSCR and ADSCR for the hotel industry needs to be carefully examined from a practical point of view as revival in the hotel industry would be slow. “It will take more than two years for the industry to get back to the pre-Covid period. With no or marginal profit in the next year-and-a-half, the hotel industry, which has been the worst affected, will first need to recover fixed costs like salary, electricity, maintenance and other overheads, against zero volume turnover in the last six months,” Mohanty says.

With little expectation to achieve even 60% of pre-Covid-19 turnover in the next two years, the association states that it will be difficult to maintain the ratios suggested by the committee within the given timeframe. As the letter reads, “The suggested ratios are a good indicator of the health of the hotel industry in order to repay the debts. The ratios have been achieved to repay the debt. But in the current scenario, the hotel industry is not expected to achieve these ratios within March 31, 2022. The hotel industry needs more moratorium period to sustain and bounce back.”

The letter goes on to suggest that even by 2022-23 or 2023-24, the hotel industry would be able to pay the interest with great difficulty. Hence, at least four years of breathing period should be given to the industry with large exposure for achieving the financial benchmarks.