Reserve Bank of India (RBI) has come to the fore with a new diktat. It has stated categorically (better to say notified) that hotel ventures that are operated by the entrepreneurs themselves ought to be taken out of the real estate exposure for banks in order that they get eligible for loans on the lines of infrastructure projects.
In accordance with the government press release, this new liberalization would make hotels possible to take advantage of larger credits at better interest rates, which would help to reduce the overall cost of such hotel projects.
It is to be noted that the Ministry of Tourism, Government of India had vigorously taken up the issue with the Ministry of Finance earlier this year, so as to accord infrastructure status to hotel projects, and render (all at once) fiscal amenities for formation of additional hotel room capacity to gratify the rush in demand in the tourism sector.
There is hardly any doubt that the hotel business is highly capital intensive in nature and has a long gestation period different from other segments of the tourism industry. The government release also stated that the entire country faces a shortage of good quality accommodation for both the international as well as domestic tourists. The demand for rooms will grow in the years to come, it noted.
As a result, hotels could also avail of external commercial borrowings (ECB) of up to $100 million in a financial year and with the recent announcement of RBI de-linking hotels from commercial real estate, hotels would be able to seek capital loans from banks and ease out the liquidity issues, particularly to the new hotel projects.
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