India’s state-owned oil refiners have so far tapped a special foreign exchange credit line only in part, according to industry sources familiar with the matter. The facility, made available through the nation’s largest bank in mid-April, allows refiners to borrow dollars to pay for oil imports.
The rupee has slipped back toward its record pressure levels near 95.21 per U.S. dollar after a recent recovery to about 92.50 following support measures from the Reserve Bank of India. Foreign exchange traders link the currency’s renewed softness to dollar buying tied to oil imports.
Crude oil and petroleum products have been the country’s top import items in recent months, adding roughly $12 billion to $13 billion per month to India’s import bill over the past three months. That scale of dollar demand has been cited by market participants as a key driver of spot dollar purchases.
Industry sources say the special FX credit line, while intended to curb spot dollar buying for oil payments, has limited appeal when refiners expect the rupee to weaken further. One source said his company uses the bank facility for part of its dollar requirements and covers the remainder through spot market purchases because the arrangement can be uneconomical if the rupee depreciates before repayment.
Another source reported that his firm supplements only limited use of the credit line with short-term borrowing from financial markets. Both sources indicated that the combination of a weakening rupee and persistently high oil prices is eroding the attractiveness of the dollar borrowing facility.
Context and mechanics
The credit line was introduced as a measure to reduce immediate spot demand for dollars to pay for oil imports by allowing refiners to borrow dollars through the lending bank. However, refiners weigh that benefit against the currency risk of repaying dollar-denominated borrowings if the rupee continues to slide.
Refiners' cautious approach means they are meeting part of their needs through the bank facility while still relying on spot purchases and short-term market borrowing to cover the rest.