India’s RBI asks state oil refiners to curb spot dollar buying, sources say

NEW DELHI/MUMBAI: India’s central bank has urged state-run oil refiners to curb spot dollar purchases and tap a special credit line for their foreign exchange needs, three sources said, reviving measures used earlier in the Ukraine war to ease pressure on the rupee.

A surge in oil prices and heavy foreign portfolio outflows have battered the Indian currency. It has fallen more than 3% to record lows this year, making it Asia’s worst-performing major currency.

Using the special credit facility would reduce dollar demand from refiners, helping ease pressure on the rupee, two of the sources said. Refiners are major buyers of dollars to pay for oil imports.

The state-run refiners have been asked to access the credit line via the State Bank of India, the sources said. SBI is India’s largest bank and is state-backed.

All three sources declined to be named as they are not authorised to speak to the media. The Reserve Bank of India and SBI did not immediately respond to emails seeking comment.

The credit line is available to major state-run refiners Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp, which together control about half of India’s 5.2 million barrels per day of refining capacity.

The refiners are also being encouraged to route daily dollar purchases through SBI instead of multiple banks, one of the sources said.

With SBI already handling sizeable merchant flows, funneling oil-related FX demand through SBI can help reduce the overall market impact, this person added.

Refiners can either buy dollars at the RBI reference rate or draw on the credit line for their FX needs, a second source said.

None of the refiners responded to emails seeking comment.

Three spot FX traders, separate from the three sources cited earlier, said they had seen an anecdotal decline in the oil companies’ activity in the spot market in recent days.

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Indian rupee strain

The RBI has turned to crisis-era measures, which sources said have been in place for about two weeks, to support the rupee amid pressure linked to the Iran war.

Concerns about spillovers from the conflict helped push the Indian rupee to an all-time low past 95 per dollar in late March.

The central bank has taken other steps to shore up the currency. It has clamped down on arbitrage trades that it said exacerbated market volatility and barred Indian banks from offering corporates non-deliverable forward contracts.

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The RBI has also sold dollars from its FX reserves to support the currency.

The rupee has strengthened following the bank’s measures, recovering about 2% from its record low. It was last quoted at 93.20 per dollar on Thursday.