RBI eases norms for OMCs to borrow externally

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A move to curb Rupee fall amid rising oil prices




The apex bank of India in order to stabilize Rupee, announced liberalization of the policy for public sector oil marketing companies (OMCs) in the case of external commercial borrowings (ECB) for working capital purposes. Under the extant policy, ECB can be raised under tracks I and III for working capital purposes if such ECB is raised from direct and indirect equity holders or from a group company, provided the loan is for a minimum average maturity of 5 years.

As per the new provision, the Reserve Bank of India (RBI) on 03 October 2018, announced that public sector OMCs can raise ECB for working capital purposes with minimum average maturity period of three to five years from all recognized lenders under the automatic route. “In consultation with the Government of India It has been decided to liberalise the said provision and permit public sector Oil Marketing Companies (OMCs) to raise ECB for working capital purposes with minimum average maturity period of 3/5 years from all recognized lenders under the automatic route”, the RBI said.

The RBI further announced that the individual limit of $750 million or equivalent and mandatory hedging requirements as per the ECB framework have also been waived for borrowings under this dispensation. However, the individual state-run refiners should have a board-approved forex mark-to-market procedure and prudent risk management policy for such ECBs. The overall borrowings under the revised norms have been capped at $10 billion and the revision in norms is with an immediate effect, the central bank stated.

The rout in Rupee amid rising prices oil prices prompted RBI to allow oil companies to raise up to $10 through ECBs, with immediate effect. The decision came on the day when Rupee touched a new low to close at 73.34 a dollar on the back of strong demand for US dollar from importers amid rising global oil prices. Brent crude, the international benchmark, breached $84 a barrel on 03 October against the previous close of 72.91, on expectations of a tighter market once U.S. sanctions on Iran are effective next month. Apprehensions over tariff war and an emerging market sell-off in Turkey and Argentina also weighed on sentiments of the investors. OMCs are the biggest borrowers of dollar.

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