30 Minute Interview

'We are concerned with the end use of funds'

Tourism Finance Corporation of India (TFCI) has been the financial force behind the various tourism and hospitality sector projects. Archana Capoor, its CMD, talks about various issues and factors that distinguish the organisation from other financial institutions. By Sanjeev Bhar

Archana Capoor CMD TFCI

How competitive is TFCI vis-à-vis other financial institutions?

The speculation that TFCI is lending on a higher interest rates than banks or other financial institutions is based on an old 2001 report. The report by the Ministry of Tourism writing the same to the Planning Commission finds little relevance today. At present, the banks are charging interest rates as high as 16 per cent while we are charging less than 13 per cent in some cases. TFCI is as competitive as the banks.

Is TFCI trying to simplify its lending procedures for projects?

It is not easy. Compare us with banks and you will find that they are not directly concerned with the end use of the money. Whereas when TFCI is financing a project, it is also concerned with the end results. That's the only reason that differentiates TFCI from the rest. We also provide provisional inputs to the project but the ultimate decision lies with the developers. If they face any genuine problems, we try to extend help and sometimes, even help them with tie-ups.

The auctioning of land sites has led to cost of hospitality projects going over the roof. Your reaction?

Only auctioning of land by organisations like DDA is not the right method. There should be a combination of long-term lease and auction. Tendering method is also questionable since like auctioning it has a reserve price too and the highest quoted tender wins the project.

How should the hotel projects be funded in the given scenario?

It needs to be understood that it is easy to set up a hotel but difficult to operate it. Therefore, equity participation is very critical. In equity participation projects, small escalation in the costs should be taken care of by promoters. They should not work with shoe-string budget. Debt, on the other hand, is a critical component and I think a lot of difficulties come in with it, as financial institution demand specific information. Today, it is seen that equities are given to foreign companies and I see them as a form of debt. Because selling equity to a company means it is an entry into a strategic partnership with no interest of the acquiring party in the business unless it is a hotel chain. If it happens to be a strategic partner then it would only expect higher returns. So, the combination of debt and equity seems prudent, as one qualifies for tax benefits under debt financing also.