Oil bonds may not be granted SLR status

The Rs 28,300-crore oil bonds are unlikely to be granted Statutory Liquidity Ratio status with the North Block not in favour of the move.

Officials said though the oil bonds would be issued as non-SLR gilt-edged bonds, the finance ministry, through "benign intervention", would ensure they are easily traded and liquidity is ensured for the oil companies when required.

The petroleum ministry has been seeking SLR status for oil bonds since these are easily traded in the market because of high liquidity. Banks subscribe to these bonds as they are required to maintain 25 per cent of their net demand and time liabilities in government securities.

"The contention of the North Block is that the SLR bonds should be generally restricted to only two entities "" the sovereign Union government and the state governments," an official said. The modalities of the bonds are expected to be finalised by Wednesday.

Officials said they would be issued in three to four tranches and would have a maturity of three, five and seven years. The interest rate on the bonds would be half a percentage point more than the 7 per cent interest rate on oil bonds last year. The government had last fiscal issued oil bonds worth Rs 11,500 crore in two tranches.

Officials said there would be no rejig of the excise duty on petroleum products since the finance ministry had approved issuance of oil bonds of Rs 28,300 crore as against the petroleum ministry's proposal to issue bonds worth Rs 23,000 crore coupled with a reduction in excise duty.

Explaining the logic behind the benchmark Brent crude price of $75 for allowing oil companies to increase prices, officials said this was equal to $70 per barrel of the Indian crude basket.

"The price of the Indian crude basket is $68 million, when this crosses $70 per barrel, it would trigger the automatic price adjustment mechanism," an official said.

For every $1 increase in Brent prices, oil firms would be allowed to raise the price of petrol by 39 paise, diesel by 30 paise, kerosene by 36 paise and cooking gas by 67 paise per cylinder, the official said.