Mandatory hedging condition has been waived off
MUMBAI: Even as the measures announced by the Government have fallen short of arresting the fast depreciating rupee, which has already fallen past Rs73 per dollar, the Reserve Bank of India (RBI) has relaxed the terms on external commercial borrowing (ECB) for the public sector oil marketing companies (OMCs), thus smoothening the entry of more dollars into the country’s financial system.
The public sector OMCs such as Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) being the largest consumers of the greenback, and the oil prices having been headed towards $90 or even $100 per barrel in not- so-distant-future, the new RBI step gains much significance.
With the relaxed regulations in place, the cash-rich public sector OMCs can now borrow dollars from all recoginsed lenders under the automatic route. Even the tenure of these borrowings can be three or five years unlike before when it needed to be minimum five years.
“Under the extant policy, ECB can be raised for working capital purposes if such ECB is raised from direct and indirect equity holders or from a group company, and provided the loan is for a minimum average maturity of 5 years. It has been decided, in consultation with the Government of India, to liberalise the said provision and permit public sector oil marketing companies (OMCs) to raise ECB for working capital purposes with minimum average maturity period of 3/5 years from all recognized lenders under the automatic route,” the RBI statement said.
More importantly, the mandatory hedging condition under the ECB framework has been done away with as has been the case with the $750 million individual limit too. “However, OMCs should have a board approved forex mark-to-market procedure and prudent risk management policy, for such ECBs,” the RBI noted.
The overall ceiling for such ECBs shall be capped at $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,” says the RBI notification.