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Our Bureau The RBI on Wednesday permitted oil marketing companies (OMCs) to tap the external commercial borrowing (ECB) route to raise dollar loans for working capital needs of up to $10 billion from all recognised lenders under the automatic route.
This measure, which came after the rupee breached the 73 to the dollar mark, is aimed at ensuring that the demand for dollars from OMCs in the forex market does not pressure the rupee further.
“It has been decided, in consultation with the Government of India, to liberalise the said (ECB) provision and permit public sector OMCs to raise ECB for working capital purposes with minimum average maturity period of 3-5 years from all recognised lenders under the automatic route,” the RBI said in a circular to banks authorised to deal in forex.
Under the extant policy, ECB can be raised for working capital purposes if it is raised from direct and indirect equity holders or from a group company, provided the loan is for a minimum average maturity of five years.
Further, the RBI said 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, OMCs should have a board-approved forex mark to market procedure and prudent risk management policy for such ECBs.
$10-billion ceiling
“The overall ceiling for such ECBs shall be $10 billion equivalent and the said facility will come into effect from the date of this circular. All other provisions of the ECB policy shall remain unchanged,” the RBI said.
“With this, OMCs will not borrow dollars from the local market. Rather, they will tap the overseas market to borrow dollars and whatever they borrow they will not pay immediately, they will repay after 3-5 years,” said an official with Indian Oil Corporation Ltd, India’s biggest oil refiner.
“This is a mechanism to stabilise the demand-supply of dollars. If OMCs are not allowed to take ECB for working capital, we will purchase dollars from the local market to pay for dollar-denominated crude purchases. Ninety per cent of crude procurement is in dollars only. Now, we can go abroad, take loans in dollars and repay after 3-5 years. Dollar will come to India and dollar inflows will increase,” he said, asking not to be named.
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