The tourism industry has welcomed the recommendations of the Kamath Committee, however industry players think it may be difficult for some to meet the parameters. The KV Kamath Committee has listed tourism among the 26 sectors that require financial restructuring in the aftermath of the COVID-19 crisis.
The five-member committee appointed by the Reserve Bank of India (RBI) has recommended five financial parameters or ratios with sector-specific thresholds that lending institutions can factor in as part of a graded approach to restructuring or finalising a resolution plan for a borrower.
The five parameters for each sector are the total outstanding liability to adjusted net worth, total debt to EBITDA, debt service coverage ratio (DSCR), average DSCR, and current ratio.
Debt/EBITDA ratio signals how well a company will be able to service its loans and other liabilities and a lower ratio indicates a higher capability to service loans and liabilities. This ratio has been kept at less than or equal to five for hotel, restaurant and tourism sector.
While the tourism industry has welcomed the recommendations of the Kamath Committee, industry players think it may be difficult for some to meet the parameters.
“The Kamath Committee’s recommendation on parameters for the COVID-19 related restructuring and inclusion of affected sectors like tourism, is welcoming. However, meeting the thresholds may be bit challenging for certain sectors. Also, larger players in hospitality, with higher debt levels may face challenge in meeting the parameter criteria,” said Anirban Chakraborty, managing director and chief executive officer, Tourism Finance Corporation of India (TFCI).
Recently, the Federation of Associations in Indian Tourism and Hospitality (FAITH) pegged tourism industry’s losses for FY21 to Rs 15 trillion (Rs 15 lakh crore) owing to the coronavirus pandemic. This is three times more than what was estimated earlier this year. In March, losses for tourism sector were estimated at Rs 5 trillion (Rs 5 lakh crore).
The association had also pointed out that tourism, travel and hospitality together impact almost 10 percent of jobs and gross domestic product (GDP) directly and indirectly across India.
FAITH had also recently raised a request to the expert committee set up by the RBI. The association in their request had highlighted that tourism sector is the one which is the most highly affected where 90 per cent of the respondents foresee a bleak business scenario for at least the next six months.
FAITH submitted that all segments of Indian tourism are down and will underperform as an outcome of the coronavirus pandemic. Job losses in the tourism space are estimated at 40 million (4 crore) for 2020. While the October to March period is the peak season for tourism sector, industry players think that in the current financial year there is no visibility of business happening. (Source: Money Control)