Lenders to Kerala’s bar hotels fret over liquor policy

Kochi, Sept 5: Financial institutions that have loaned funds to bar hotels in Kerala are likely to take a hit in their balancesheets due to the new liquor-free policy of the Congress-led government in the state. Kerala had 753 bar hotels of which 418 were closed last April. The government's decision to shut all liquor bars, except the 16 five-star ones, before the end of this fiscal is also likely to hit the hospitality sector and spread to other sectors.

While total investment in the 753 bar hotels is estimated above R20,000 crore, the worst hit would be state-run financial institutions like Kerala Financial Corporation which has substantial stake in the sector. Owners of bar hotels were forced to upgrade the infrastructure according to the changing policies of the government which raised the criteria repeatedly and created confusion. The matter of bar hotels being substandard first came up in a 2007 report of the excise department, which recommended that the licences of poor-quality hotels need not be renewed.

Banks and financial institutions like KFC have lent lib- erally to the bar hotels as the repayment was prompt due to the nature of business. Nationalized banks have an exposure of R3000 crore, state president of the Kerala Bar Hotels Association told FE.

“KFC alone has a total exposure of R570 crore in the sector which is almost 26 % of our total lending. Out of this R320 crore has been given to 250 hotels which are new or have upgraded. They are like- ly to come under stress as their plans were based on having bar licenses,” P Joy Oommen, CMD of KFC told FE. “For the last twenty years we have been the leading lenders for the sector as our rates are competitive when compared with banks and our policies are liberal. Most of them were servicing the loans efficiently. But we fear that the last two years has been bad for the sector and the loans could turn bad," he said. “More than 95% of the 753 hotels would close down without liquor business. Liquor revenue was the mainstay of the business which actually subsidized the room and food costs. Some hotels in good locations may survive but the total revenue would be hit badly. Most of them are likely to default on the loans,” Rajkumar D, State President of the Kerala Bar Hotels Association told FE.

The state has a per capita consumption of liquor of 8.3 litres a year. The bar hotel industry, which directly employs 25,000 people, does an annual business of R1,500 crore. Last year, the industry contributed R2,300 crore to the state exchequer in the form of license fee, excise duty and sales tax.