European Union sanctions cloud lenders' confidence in Nayara Energy

SBI halts trade, foreign currency transactions to avoid adverse action

Lenders have turned cautious on their exposure to Nayara Energy, in which Rosneft holds a 49 per cent stake, due to a moderation in business prospects in the aftermath of European Union (EU) sanctions.

 

Senior public-sector bank (PSB) executives said the implications of restrictions in banking relations may not be limited to a mere halt in processing trade and foreign currency transactions; lenders would also have to relook at their approach to bank guarantees and term finance.

 

The country’s largest lender, State Bank of India, has halted trade and foreign currency transactions for Nayara as a pre-emptive step to avoid adverse action, as it has substantial operations in the US and Europe.

 

 

The issue is not just about settling or processing foreign currency transactions; it is more about the overall impact on the business of oil refiners. “We have to devise a long-term strategy to navigate the negative impact of US tariffs, as it would reduce the overall business of refineries,” said a senior PSB executive.

 

The US has announced an additional 25 per cent tariff on Indian goods exported to the US, citing India’s import of Russian crude oil. Also, the EU has announced a package of sanctions against Russia. These sanctions include an import ban on refined petroleum products made from Russian crude oil and coming from any third country, and on several companies and entities including Nayara.

 

Russian oil major PJSC Rosneft Oil Company holds over 49 per cent in Nayara, which has a single-location oil refinery at Vadinar (Gujarat), with a capacity of 20 million tonnes per annum.

 

According to senior public-sector bankers, banks would try to find a solution to minimise risks to lenders, as Nayara has significant refining capacity crucial for meeting the country’s energy needs. “For the sake of one client, banks can’t risk their balance sheet,” he added.

 

One of the options that could be considered is support from lenders that do not have operations in the US and Europe. This has been done in the past to manage sanctions on Iran. Uco Bank and IDBI Bank were designated to process trade transactions with Iran, which faced sanctions. This would need government support and initiative.

 

In July 2025, CareEdge Ratings reaffirmed the rating on Nayara’s long-term (‘AA-’) and short-term (‘A’) ratings. This reflected a strong operating profile and derived comfort from healthy throughput and profitability in 2023-24 and the first nine months of 2024-25, resulting in an improved financial risk profile underlined by an improved capital structure and strong liquidity.

 

Nayara’s strong liquidity derives comfort from cash and cash equivalents of ₹10,554 crore as of December 31, 2024, and sizeable undrawn working capital limits. “Nayara’s cash accruals are expected to have a significant cushion compared to its term debt repayment obligations in the medium term,” the rating agency said, adding that a significant dilution in existing liquidity will be a key monitorable.