The Hindu Business Line : IOC's cost-effective borrowing through e-trading system

INDIAN Oil Corporation Ltd (IndianOil) expects to save close to Rs 2 lakh per day on interest charges alone on its short-term borrowings by logging onto an innovative trading system floated by Clearing Corporation of India Ltd (CCIL).

The Director (Finance), Mr S.V. Narasimhan, inaugurated the new transaction system, borrowing over Rs 600 crore on the very first day of its operation through the CCIL's collateralised borrowing and lending obligation (CBLO) dealing system, a company statement said.

Sourcing short-term funds from the open market through CCIL's platform would mark a significant leap in IndianOil's efforts in sourcing cost-effective borrowings, the statement added.

Speaking on the occasion, Mr Narasimhan said, "By accessing the new automated order-driven internet-based instrument system, IndianOil will gain flexibility in arranging short-term loans directly from the open market. Besides flexibility, considerable savings will also accrue to IndianOil due to cost-effective deals."

Till now, the corporate sector was not allowed to access the call money market directly. The CBLO trading system, developed recently by CCIL, has now been approved by RBI as an open money market instrument, that enables companies to become members and access this platform by pledging Government securities against their borrowing limit, to borrow and lend at around the cost-effective call money market rate.

Currently, IndianOil meets its short-term and long-term fund requirements by raising loans from domestic and international markets. The size of IndianOil's short-term rupee loans is approximately Rs 5,000 crore out of the estimated total corporate borrowings of about Rs 22,500 crore as on October 31, 2005.

IndianOil meets its loan requirements from banks at a borrowing rate based on overnight MIBOR (Mumbai Inter-Bank Offer Rate), which generally moves in tandem with the call money market rate (call rate is the rate at which banks borrow / lend overnight funds in the open market).

Lending on the basis of MIBOR is generally made at 25-30 basis points higher than the call rates from the open market due to the build-up of margins charged by various banks.

With the commencement of borrowings through the CBLO trading system, IndianOil can now look forward to cheaper loans sourced directly from the open market, the company said.

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