The Hindu Business Line : Credit policy fails to cheer PSU refiners

Kolkata. Oct. 31 Despite an attempt to help domestic refiners hedge their risk against price volatility in both the global crude as well as product market, RBI’s mid-term review has failed to cheer up the PSU refiners.

IndianOil, the country’s largest refiner, feels that the permission granted may have little relevance to the business model followed by the company.

The mid-term review has allowed these companies to hedge their foreign exchange exposures by using overseas over-the-counter (OTC) or exchange traded derivatives “up to a maximum of one-year forward.”

The policy has also allowed “importers and exporters having forex exposure to write cover call and put options in both foreign currency or rupee and cross currency and receive premia”

“We wanted permission to hedge our risks of inventory loss. However, we are not sure whether the same has been effectively addressed by the policy. We are seeking relevant clarifications from the RBI,” the Director (Finance), Mr S.V. Narasimhan, told Business Line.

In volatile market conditions, refiners often find crude and product prices moving in opposite direction leading to a situation whereby the company’s crude inventory is priced more than the current product price, leading to an inventory loss (or trade loss).

Treasury Business

The PSU oil refiners were not quite enthusiastic about the permission granted on writing call and put options. “We are not particularly interested in treasury business as it may be too risky for our core activity,” said another PSU oil refiner.

Mr S.K. Joshi, Director Finance of BPCL, is also waiting for clarifications from the RBI before making any assessment.

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