Source half the dollar needs from one bank, refiners told
New Delhi   25-Jun-2012

The Reserve Bank of India has asked state refiners to buy half their dollar requirement from one public sector bank to contain exchange rate volatility, oil secretary CG Chaturvedi has said. "Currently, oil companies seek dollar quotes from multiple banks, giving an exaggerated impression of their demand for dollar. This leads to strengthening of dollar against the rupee," Chaturvedi said.

India imports more than 80% of its crude oil requirements and pays in dollar, which has contributed to the continued depreciation of the rupee. The rupee fell to a record 57.32 against the dollar on Friday because of strong demand for the US currency from importers of oil and gold. The RBI's directive is perhaps to discourage the practice of floating enquiring with several public and private sector banks that encourage exchange rate volatility, Chaturvedi told reporters after the launch of a portal meant for cooking gas consumers.

"RBI has sent the letter to the ministry in response to our letter that sought its help in checking volatility in the exchange rate. Oil companies will be directed suitably," Chaturvedi said.

IndianOil, Bharat Petroleum and Hindustan Petroleum require about $8 billion every month to purchase crude oil, some petroleum products and cooking gas. IndianOil, India's biggest refiner by volume currently buys 20% of its daily forex requirement from State Bank of India and the remaining through bids from 16 identified public and private banks.

Bharat Petroleum and Hindustan Petroleum source their entire requirement through competitive bidding. BPCL and HPCL together need about $3 billion a month for oil imports. "Our crude oil import last year was to the tune of 52.5 million tonnes. The quantity is more or less the same but the value of import will be more due to exchange rate variations," IndianOil chairman RS Butola said.

Chaturvedi said oil companies will pay quoted market rates for dollar to state-run banks. "While they will buy half their daily foreign exchange requirements from a public sector bank, they can source the rest from any other bank following competitive biddings," he said. The RBI directive would not be applicable to Reliance Industries and Essar.