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Oil bonds not to get SLR status, says Chidambaram

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Govt to go ahead with scheduled market borrowing

TOP DECISION-MAKERS: (From left) The Union Finance Minister, Mr P Chidambaram; the Minister for Agriculture, Mr Sharad Pawar, and the Minister for Petroleum and Natural Gas, Mr Murli Deora, coming out after a Cabinet meeting at South Block in the Capital on Thursday. Ramesh Sharma
TOP DECISION-MAKERS: (From left) The Union Finance Minister, Mr P Chidambaram; the Minister for Agriculture, Mr Sharad Pawar, and the Minister for Petroleum and Natural Gas, Mr Murli Deora, coming out after a Cabinet meeting at South Block in the Capital on Thursday. Ramesh Sharma

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The Government had obtained Parliamentary approval for issuance of oil bonds worth Rs 14,150 crore. Oil bonds worth Rs 28,300 crore are to be issued to oil marketing companies this fiscal.

New Delhi, Aug. 31

Oil bonds proposed to be issued to State-owned oil marketing companies cannot be used by banks for fulfilling their statutory liquidity ratio (SLR) requirements, thereby lowering the attractiveness of such bonds.

"No SLR status will be given to oil bonds," the Union Finance Minister, Mr P. Chidambaram, told presspersons on the sidelines of the Annual Conference of Chief Commissioners of Central excise, customs and service tax here today.

Oil bonds are to be issued to OMCs for compensating them on losses incurred for selling fuels below the cost price. The Petroleum Ministry had made a request to the Finance Ministry for a SLR status.

The Government had already obtained Parliamentary approval for issuance of oil bonds worth Rs 14,150 crore. In all, oil bonds worth Rs 28,300 crore are to be issued to OMCs this fiscal.

Mr Chidambaram also said the Government would go ahead with the scheduled market borrowing of Rs 9,000 crore from September 4-12. "We will borrow as per schedule. There is no indication of any change," he said.

G-Sec demand

If the oil bonds were to be granted SLR status, then there would have been the possibility of banks buying into them to conform to SLR requirements. This would have, however, reduced the demand for government securities to some extent.

As part of the SLR requirements, banks in India are mandated to maintain 25 per cent of their time and demand liabilities, as on the last Friday of the second preceding fortnight, in the form of cash, gold or approved securities.

Last year, OMCs were issued oil bonds worth Rs 11,500 crore and such bonds were not given SLR status. As the oil bonds are tradable, OMCs can sell the bonds in the market and boost their profits.

Mr Chidambaram, said that "no common ground" had been reached between the Centre and States on the issue of compensation for Central sales tax (CST) phaseout.

States have made it clear that phaseout of CST beginning October 1 was contingent on full compensation by the Centre of the losses arising to the States from the phaseout.

Annual CST collections during 2005-06 stood at Rs 18,000 crore.

Cut in CST

States have estimated that cut in CST from 4 to 3 per cent from October 1 would result in loss of Rs 2,500 crore in the next six months of the current fiscal and about Rs 12,000 crore in fiscal 2007-08, when the CST is proposed to be cut to 2 per cent.

Related Stories:
Govt issues special bonds for oil marketing cos
Oil bonds being sold at heavy discounts
Oil bonds to carry 7 per cent interest

(This article was published in the Business Line print edition dated September 1, 2006)
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