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Hoteliers and developers have started moving to restructure loans on their delayed projects after the Reserve Bank of India (RBI) recently eased norms pertaining to the start of commercial operations.
Hoteliers and developers have started moving to restructure loans on their delayed projects after the Reserve Bank of India (RBI) recently eased norms pertaining to the start of commercial operations. The RBI circular has provided some relief for the hospitality industry, where more than 80% of new projects by value have been stalled. Developers across sectors, including hotels, can change the date of commencement of commercial operations (DCCO) several times within two years of a proposed launch date and adjust their repayment schedules accordingly, according to the RBI notification dated June 26. "It is clarified that multiple revisions of the DCCO and consequential shift in repayment schedule for equal or shorter duration (including the start date and end date of revised repayment schedule) will be treated as a single event of restructuring, provided that the revised DCCO is fixed within the respective time limits," the RBI said. This means hotels that have not been able to open on the date promised to lenders can get multiple extensions of the date for up to an additional two years. Previous RBI circulars dated March 31, 2010, and May 30, 2013, did not mention the number of times the opening date could be extended within the stipulated period. "Earlier, there was no clarity on how many times a loan could be restructured within two years. However, with this clarity, banks have more flexibility to change the terms of loan and the DCCO due to project delays," said Deven Shah, senior vice-president for debt capital markets at Kotak Mahindra Bank. The move comes as a breather for the hotel industry which is battling cost overruns and increased stress levels. "With this relaxation, developers can get their loan tenure elongated, if they are running behind schedule and cannot meet the original DCCO which they had planned," said Ashwin Mehta, managing director at debt syndication and advisory services firm Pankti Management Consultancy, which has received four cases for re-financing hotel project loans. Delays in obtaining clearances are a major factor in slowing the development of hotels and 80% of the new projects announced by value have been stalled over financial years 2012 and 2014, according to an India Ratings and Research (Ind-Ra) report. More than 50% of the permits needed to run a hotel, including fire safety clearances and lift and liquor licences, are obtained in the last stage of the project, delaying the start of operations." It's a win-win situation for both lender and borrower. They can make a practical alignment of loan schedule with the progress of the project," said Priyakant Amin, director at Convention Hotels India, which owns and builds hotels. |
