Time To Spread Wings

Tourism Finance Corporation (TFCI) is like any other DFI but with one difference - its exposure is restricted to one sector. The tourism industry has not been performing well in the last couple of years for well known reasons --slowing down of both business and leisure tourist arrivals. This has led to low occupancy levels and profits in even large, five star hotels. While occupancy projections have gone haywire, curtailing expenditure to the same extent has not been possible.

Since TFCI's income depends, to a large extent, on the cash flows of its borrowers, it has been facing problems on this score. In 1997-98, it provided Rs 7.75 crore as doubtful loans as against Rs 4.6 crore in 1996-97. The existence of a special reserve (created to avail tax benefits) cushioned the impact as Rs 7.5 crore of this reserve was utilised to make the provisions. This also enabled it to post a higher profit of Rs 27.57 crore as against Rs 26.68 crore in the previous year.

 

In the aftermath of the slowdown, the squeeze has been more telling on smaller hotels. Here, TFCI's asset profile seems unsuitable for steady accruals. Of the cumulative sanctions of Rs 1,649.92 crore, 31 per cent is accounted for by five star hotels and eight per cent by four star hotels. A whopping 44 per cent has been lent to three star hotels. One would have thought that the events of the last two years would have led to a cautionary approach while lending to this segment. However, fresh sanctions in 1997-98 to three star hotel projects amount to 57 per cent at Rs 181.66 crore. Aggressively pursuing business is one thing but increasing exposure to a segment that is not performing well at the moment is only asking for trouble.