Banks can now increase lending to public sector oil firms up to 25% of the bank?s investment limits. The Reserve Bank on Thursday, liberalised the policy governing borrowings by oil companies to tide over their acute working capital shortages.
In a notification, the central bank said, ?It has been decided to revise with immediate effect… exposure limit to 25% of the capital funds (from existing 15%). ?In exceptional circumstances, the RBI said banks could consider enhancement of their exposure to oil companies up to a further 5% of capital funds.
This enhancement in borrowing limit is applicable only to those oil companies, which have been issued oil bonds by the governments. But as the bonds do not carry a statutory liquidity ratio status, unlike ordinary government bonds, this means those are not very marketable. So, the oil companies have faced higher interest rates in using them to borrow from banks.
The move comes amid state-run oil companies reporting that they would run out of cash in 2-3 months to import crude, whose price has doubled since the last retail fuel price hike in February. Last week RBI has enhanced by 25 basis points the marked to market sprwad for valuation of oil bonds at 25 basis points over government papers. The measure also increased the attractiveness of the bonds, by improving yields and lowering the interest rate difference with government bonds.
The petroleum ministry has been pushing for an immediate hike in retail prices of petrol, diesel and LPG cylinders to pull out oil companies from a financial sinkhole.