ECB Norms Relaxed oil Companies
15, Oct 2018
Prelims level : Economy Mains level : Indian Economy and Capital Market
- With the rupee under pressure following rise in global crude oil prices, the Reserve Bank of India liberalized the norms for oil marketing companies (OMCs) to raise funds through external commercial borrowings (ECB).
- The move came on a day when the rupee closed at a new low of 73.34 against the dollar, after Brent oil breached the $ 84 a barrel.
- India’s central bank said that it will relax external commercial borrowings (ECB) policy to allow state-run oil marketing companies to raise external debt for working capital
- The Reserve Bank of India will permit oil marketing firms to raise overseas funds with minimum average maturity period of 3 or 5 years under the automatic route, it said in a statement.
- It lifted the individual borrowing limit set at $750 million under the ECB framework.
- The overall ceiling for such ECBs shall be $10 billion, hereafter.
- With regards to hedging, earlier it was mandatory to hedge all kind of borrowings but now there is relaxation given by the RBI and so the OMCs can decide if they want to hedge immediately or not.
- If OMC hedge it immediately it will be costlier than the domestic loans and so this waiver on hedging is important to OMC as it makes borrowing cost lower.