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BW Businessworld

Succour For Oil Retailers

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Banks will now be able to lend more to Bharat Petroleum Corporation Ltd, Hindustan Petroleum Corporation Ltd and Indian Oil Corporation, which have been struggling to keep their operations viable at a time when global crude prices have topped $130 a barrel.

In a circular issued on Thursday, the central bank said the exposure limit of banks to a single borrower has been raised to 25 per cent of their capital funds from the current level of 15 per cent.

In exceptional circumstances, the banks may increase their exposure to 30 per cent of their capital funds.

However, this will only apply to nationalised oil companies, specifically those to whom oil bonds have been issued.

A bank's capital funds consist of its Tier 1 (core capital) and Tier II capital (secondary bank capital). The RBI had prescribed exposure ceiling limits of 15 per cent in the case of a single borrower and 40 per cent for a group.

Sources in the oil industry, who did not wish to be identified, said the RBI direction was timely considering the present state of the oil companies' finances finances.

As crude oil prices have surged in the recent past, oil companies have been knocking at the doors of banks for both short- and long-term funding.

Bankers said in the case of public sector oil companies, the exposure limits had nearly touched the levels prescribed by the central bank.

"We now need more funds to buy the same quantity of crude. There has been a huge demand for funds from banks. Our working capital needs have multiplied. Therefore, the RBI move is indeed positive," a senior official from a state-owned oil marketing company said.

It is learnt that a single company has borrowed more than Rs 30,000 crore over the past couple of months.

Apart from borrowing from banks, oil companies have also been selling their oil bond holdings.

(Courtesy: Telegraph)