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RBI permits ECBs for Hotel Sector

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In a move to promote growth in the hotel industry, the Reserve Bank of India vide RBI/2012-13/387 A.P. (DIR Series) Circular No.78 dated 21 January 2013 has revised the external commercial borrowing policy to allow Indian companies engaged in the hotel sector to avail external commercial borrowing for either repayment of outstanding rupee loans or for fresh rupee capital expenditure. The external commercial borrowing can be obtained by Indian hotels irrespective of the geographical location provided that the total project cost of the hotel is more than INR 250 Crores. The project cost may be certified by the authorized dealer while forwarding the application to the Reserve Bank of India. Other conditions applicable to manufacturing and infrastructure sector for utilization of external commercial borrowing for repayment of rupee loan or for fresh capital expenditure will continue to apply and are extended to the hotel sector. The conditions are:

(1)        The hotel should be a consistent foreign exchange earner for the past three years.

(2)        The maximum external borrowing that a hotel can avail will be the higher of (a) 75% of its average foreign exchange earning for the past three years; and (b) 50% of its highest foreign exchange earnings in the past three years. The maximum permissible external commercial borrowing is USD 3 million for individual and group hotels.

(3)        The external commercial borrowing will be repaid out of the hotel’s foreign exchange earnings.

(4)        The hotel should drawdown the entire external commercial borrowing facility within 1 month of obtaining the loan registration number.

Saumya Sharma [saumya.sharma@pxvlaw.com]

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