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Hotels, restaurants, real estate were not taboo for banks

MUMBAI:Hotels, tourism and commercial real estate may be the worst-hit sectors amid the Covid-19-driven lockdown, according to experts, causing a reversal of sorts since this cluster contributed the most to the credit growth of banks until February this year.

While the tourism, hotels and restaurants segment saw a 16.9% year-on-year increase in loans to Rs 45,000 crore in February, commercial real estate credit expanded 15.1% to Rs 2.29 lakh crore, according to the latest Reserve Bank of India(RBI) data.

These sectors are now prone to defaults as business has come to a near standstill during the lockdown, said experts.

“It is incumbent upon the government to focus more on ensuring that the liquidity crisis faced by these industries doesn’t morph into a solvency crisis,” said Ajay Bodke, CEO for portfolio management services at Prabhudas Lilladher. “Hence, New Delhi needs to provide cash flows to those sectors which were otherwise doing well. Fixed costs also need to be reimbursed by the authorities.”

Although the tourism, hotels and restaurants segment comprises just about less than a percent of the entireindustrycredit, these sectors have a greater role in employment generation in the country.

“Some of the sectors where rating downgrade pressure would likely be higher are hotels, along with aviation, cut and polished diamonds, retail and textiles (cotton spinning) and real estate (retail),” said Anjan Ghosh, chief rating officer at rating agency Icra.

Overall bank credit increased 7.3% year-on-year in February, compared to 13.5% a year ago. Some segments, including consumer durable loans and unsecured loans, posted higher growth than they did last year. But only retailbank loansrecorded higher growth than tourism, hotels and restaurants during the period, 17% versus 16.7% a year ago.

Rating agency Crisil has reviewed 120 companies most affected by the lockdown, belonging to sectors such as airlines, hotels, tourism, malls, organised bricks-and-mortar retail, multiplexes and restaurants.

Experts said that although the RBI has already offered moratorium on bank loan repayments, it would have to do more to help alleviate the impact of business freeze.

April 08, 2020

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