The Hindu Business Line : Credit offtake by oil cos high

Besides drawing down of credit lines, some of the oil companies were also resorting to raising funds through the collateralised borrowing and lending obligation markets. Their borrowings are estimated at Rs 30,000 crore due to under-recoveries during the whole of this financial year.

Bangalore , Feb. 9

LARGE borrowings by domestic oil companies are beginning to drive non-food credit offtake in the public sector banks.

Banking sources said a large component of the non-food credit offtake in the last few weeks was from oil companies. In fact, bankers said oil companies' borrowings were largely responsible for the high incremental credit-deposit ratios. These ratios of most of the banks are above 100 per cent. Even the nominal CD ratios are at record high levels of 70 per cent.

The Union Bank of India Executive Director, Mr Ratnakar Hegde, said, "Yes to some extent the high credit offtake is from oil companies. But credit offtake is also high in other sectors such as infrastructure and retail."

Bankers said the oil companies had lines of credit with the banks that were being drawn. The funds drawn were utilised to source foreign exchange for meeting crude import requirements. India currently imports close to about 2 million barrels of oil per day. The drawdown was also ahead of the Government's placement of a second round oil bonds in settlement of subsidies dues to the companies.

Bankers said that besides drawing down of credit lines, some of the oil companies were also resorting to raising funds through the collateralised borrowing and lending obligation (CBLO) markets. CBLO is a form of ready forward for non-bank participants. Funds through this route could be raised for tenors up to a year.

Switch to domestic market

Till recently, oil companies raised foreign currency resources directly from international banks at rates as low as 25-50 basis points above the London inter bank offered rate. However, with international rates on the ascent including the cost of forward cover, most of them have switched to domestic currency denominated funds. These are currently available at rates as low as 7 per cent. In fact, bankers said that this was one of the major factors that contributed to the tightness in the money markets and high forward premiums for one to three months.

Steep under recoveries: One of the major factors driving the oil companies to the money markets was steep under-recoveries. Their borrowings are estimated at Rs 30,000 crore due to under-recoveries during the whole of this financial year.

The requirements included both capital expenditure and working capital.

About two months ago, the IOC Chairman, Mr Sarthak Behuria, in a press briefing had admitted that the borrowings during the current year were likely to be close to about Rs 24,000 crore.

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