India’s travel, hospitality, and restaurant sectors are witnessing a significant resurgence, with credit deployment surging to ₹70,952 crore, a remarkable increase from the previous figure of ₹65,089 crore, as of July 2023, as reported by the Reserve Bank of India (RBI). This 9 per cent year-on-year rise indicates a promising revival for these industries which were hit hard by the Covid-19 pandemic.
Jyoti Mayal, President of the Travel Agents Association of India (TAAI), attributes the remarkable increase in credit deployment to the Emergency Credit Line Guarantee Scheme 3.0 (ECLGS), introduced by the Finance Ministry in February 2020. This scheme played a crucial role in keeping the sector afloat and reducing financial stress.
The combined travel and hospitality market in India is poised for impressive growth, with a projected Compound Annual Growth Rate (CAGR) of 14 per cent from the current ₹3,89,000 crore in FY23. Specifically, India’s domestic hotel market, valued at ₹88,000 crore in FY23, is anticipated to expand by 13 per cent in FY24, reaching ₹1,00,000 crore. However, passenger traffic and rented hotel room nights in all four travel categories remain lower in FY23 compared to FY20, reflecting the lingering impact of the pandemic on travel patterns.
Bullish sentiments
Virendra Jain, co-founder and CEO at VIDEC, attributes the surge in credit demand within the hotel sector to bullish sentiments prevailing in India’s travel, tourism, and hospitality industry. Factors contributing to this growth include higher Average Daily Rates (ADRs) and occupancies, driven by robust consumer demand and a healthy influx of inbound tourists. A significant portion of the investment in the hotel industry is dedicated to expanding existing hotel chains and rebuilding the room supply that eroded during the pandemic, particularly for independent hotels.
In FY23, India had an estimated total room supply of 2 million rooms. This supply included approximately 1,75,000 rooms from branded chains such as Taj Hotels, Marriott, Accor, and ITC Hotels, as well as around 2,00,000 rooms from branded budget chains like OYO, Fab, and Treebo. This surge in supply reflects a wave of investments pouring into the sector.
Industry insiders are optimistic about the future, expecting continued growth in credit deployment within these sectors. VIDEC’s data predicts that the Indian travel market as a whole will reach ₹5,79,000 crore by FY26. Moreover, the Indian hotel market, spanning domestic, inbound, and outbound segments, saw a remarkable leap from ₹539 billion in FY22 to ₹993 billion in FY23, an 84 per cent increase. Projections indicate that it will rise to ₹1,475 billion by FY26, growing at an impressive CAGR of 14.1 per cent from FY23 to FY26.
Restaurant segment to witness growth
The restaurant industry, which also faced severe challenges during the pandemic, is undergoing a challenging recovery process. Experts within the industry assert that credit deployment was essential to help these businesses stay afloat, and consequently, seeking funding from banks was a viable option.
In line with these positive trends, the restaurant industry is also set for substantial growth. The National Restaurant Association of India (NRAI) forecasts a Compound Annual Growth Rate (CAGR) of 10 per cent from 2021 to 2025. The top five players in the domestic Quick Service Restaurant (QSR) industry are expected to add approximately 2,300 stores between FY2023 and FY2025, according to an ICRA report. The estimated capital expenditure (capex) for this period is around ₹5,800 crore, double the pre-Covid levels, highlighting the industry’s robust recovery and expansion.