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Foreign loan cheer for hotels

New Delhi, Feb. 1: The Reserve Bank of India has widened access to foreign loans for construction or renovation of hotels, so far available to 3-star or higher-category hotels in cities with a population of 10 lakh or less, by dropping the population ceiling.

However, it has inserted a new clause that limits the advantage to the hospitality industry — the loans can be taken only for investments in excess of Rs 250 crore.

“The amended guidelines would make the implementation of hotel projects in the country more viable and cost-effective,” tourism minister K. Chiranjeevi said, commenting on the modified order the RBI issued on Thursday.

Around 180-200 three-star and higher category hotels are in the pipeline across the country. Only about 30 of these will benefit from the tweak in rules.

The hospitality industry called the move a “half measure” but welcomed it nonetheless.

“We are very happy that at least the first step in the right direction has been taken. It will be a big relief. But we would have loved it had external borrowing been allowed for hotels making investments as low as Rs 50 crore. Only then will it help construction of one-star hotels, which are in greatest demand,” an industry source said.

By 2016, India needs an additional 2.75 million hotel rooms. At present there are only 2.3 million rooms. “The foreign investors are eager to invest in the Indian hotel industry because they know that it is here that growth is going to take place. If we are given a little bit more elbow room, then we can make a huge impact,” the source added.

The RBI’s original guideline was seen as contradictory because cities with a small population are less likely to have many 3-star hotels. Even satellite towns like Howrah, Meerut and Navi Mumbai have populations of just over 10 lakh. Only hotels in some holiday destinations like Sikkim, Goa or Leh had access to the foreign loans.