$600m Loans By Oil Majors May Send Forex Market Into A Tizzy

Oil majors have tapped commercial banks for foreign currency loans worth more than $600 million as their receivables from the oil pool account are not being settled. These borrowings could cause the rupee to appreciate shortly, and precipitate its sharp fall when the loans come up for repayment.

Bankers point out that oil majors like Indian Oil Corporation (IOC), Hindustan Petroleum, and Bharat Petroleum have been tapping banks for foreign currency non-resident (bank) loans. These loans are being raised at around 75 basis points over the London Inter-Bank Offer Rate (Libor). According to a senior bank official, in some cases the rate is even one percentage point over the London Inter-Bank Offer Rate (100 basis points make up one percentage point).

 

The loans range between periods of three months and six months. Says a banker: Given the uncertainty as to when the oil companies