Central bank allows domestic oil refiners to hedge risk

Ahead of a bailout package for oil companies, the Reserve Bank of India (RBI) today allowed domestic refiners to hedge their petroleum products' sale and domestic crude purchase "" to the extent linked to international prices "" on foreign commodity exchanges.

The hedging in petroleum products will strictly be allowed on the basis of underlying contracts on foreign bourses, RBI said in a notification.

In order to provide greater flexibility, RBI has also permitted domestic crude oil refiners to hedge up to 50 per cent of the actual crude oil imports in the previous year or 50 per cent of the average imports during the previous three financial years, whichever is higher, the notification said.

Hedging must be done through banks and the facilitator bank should obtain the necessary board approval from the refiner, which includes explicitly the mark-to-market policy, it added.

The move follows demands from the companies to further liberalise the hedging facilities due to the volatility in the markets. In April, the Annual Policy Statement too had touched upon the issue.

Last week, RBI opened a special window for public sector oil marketing companies, which are reeling under losses, to sell oil bonds and purchase foreign currency. In addition, the valuation rules for oil bonds have also been made attractive, while banks have been permitted to lend more to these companies.