RBI lets oil firms to raise cheap loans abroad

As the rupee plumbed a new low of 73.42 against the dollar on Wednesday, the Reserve Bank of India (RBI) swung into action to curb further falls, allowing state-run oil companies to raise cheap dollar loans abroad.

The move will ease demand for dollars locally from oil companies which are the largest consumers of foreign currency. It will also lend some support to the Indian currency, which has lost 15% in value this year.

“It has been decided, in consultation with the Government of India, to liberalise the said provision and permit public sector OMCs to raise ECB (external commercial borrowings) for working capital purposes with a minimum average maturity period of 3/5 years from all recognised lenders under the automatic route,” the RBI said in a circular.

The RBI also waived the individual limit of $750 million or equivalent and mandatory hedging requirements as per the ECB framework for borrowings under this dispensation.

The RBI is also widely expected to announce an increase in policy interest rate when it unveils its monetary policy on Friday, which may also come to the rescue of the rupee besides easing inflationary expectations arising out of higher oil prices.

Additionally, the government may soon take a call on overseas borrowing of dollars from Non-Resident Indians (NRIs) to shore up reserves and stem rupee fall, official sources said.

Under the NRI bond scheme, India allows non-resident Indians to deposit their dollars in the overseas branches of Indian banks, which then comes home and helps shore up foreign exchange reserves. The NRIs get an attractive interest rate for their money but the scheme comes with a 3-5 year lock-in period. In 2013, a similar instrument called foreign currency non-resident deposits mopped up $30 billion in foreign exchange reserves.

The Centre had recently announced an import curb on 19 “non-essential” items by raising customs duty on them in order to check trade imbalance. However, there was no import duty hike on import of gold, which is the second largest commodity in India’s import basket after crude oil.

Sources said that wary of an increase in smuggling of the yellow metal, the government may not raise duty on gold.