RBI keeps tabs on firms' oil hedges

The Reserve Bank of India has directed all banks engaged in hedging of oil for Indian corporations in the international market to submit daily statements.

The move by the central bank to keep tabs on oil hedging is aimed at warding off the possibility of speculation in the market.

"The RBI wants to check whether any speculative position is being taken without actual underlying import of oil," said a senior banker. The oil companies hedge their positions by buying oil futures from the international market.

"Any speculation can have an adverse impact on the oil pool deficit if the oil companies take a wrong call. The regulator does not want to take a chance," pointed out a foreign exchange dealer with a private bank.

The corporations will be required to submit the details of their oil imports to the local offices of the international banks. On their part, the international offices of the foreign banks operating in India and public sector banks will have to send details of all hedging contracts entered into by the corporations in the international market.

The details of hedging deals are to be submitted through the statements of commodity brokers who have entered into the deals on behalf of the banks in the overseas market.

Oil prices have already touched a high of $65, up from lows of $ 37/38 per barrel a year ago.

This has not only inflated the oil import bill of the country but has also led to a current account deficit for the third consecutive quarter.

"Any further rise in the oil price will have an impact on the inflation rate if the government decides to hike the prices of petrol and diesel. So far, the RBI has maintained a delicate balancing act on the inflation front. It does not want to encourage any speculation," said another foreign exchange dealer. It has also managed to keep the Indian rupee range bound at 43.50-43.58 over the last few weeks.

Major oil importing companies like Indian Oil corporation ( IOC), Bharat Petroleum ( BPCL), Hindustan Petroleum (HPCL), Essar and Reliance are allowed to hedge directly in the international market.

Other companies which need oil for their operations have to approach these companies to buy oil and hedge themselves in the international market through their banking network.