Oil bonds delayed over SLR status

The issuance of oil bonds or bonds to oil companies has been delayed as the government is in a dilemma over granting them SLR status. It was expected that the bonds would hit the market by September.

However, the bonds would be made eligible for subscription by provident funds, which might help in their liquidity, sources said.

SLR (statutory liquidity requirement) makes bonds equivalent to government securities that carry a sovereign status. Banks keep SLR bonds for maintaining the SLR reserve requirement prescribed by the RBI, thereby making them attractive for subscription.

However, with government borrowing expected to exceed the target for the current fiscal, giving these bonds SLR status may not be good for an already saturated market.

This is because, besides borrowing for its expenses, the government may have to borrow for bank recapitalisation and funding the Food Corporation of India. While recap bonds are expected to be issued in a month's time, FCI bonds and oil bonds will take time.

By issuing bonds worth Rs 28,000 crore, the government will compensate the oil companies for the losses incurred by them by not raising the price of retail oil in line with international crude prices.