OMCs seek compensation in case of loss through RBI’s currency swap window

Oil Marketing Companies (OMCs) are not content with RBI’s currency swap facility through which it sells and buys dollars from OMCs as part of its measures to control the rupee decline. Though the rupee has gained some stability but the OMCs are unhappy with the hedging mechanisms as they feel that with RBI’s swap window, there is uncertainty of being compensated if they incur loss in the swap transactions.

Why OMCs are unhappy with RBI’s currency swap window facility?

RBI has recently started a currency swap window to sell dollars to oil companies in exchange for rupees on condition that they reverse the transaction at a future date. The swap window is for fresh Foreign Currency Non-Resident (banks) (FCNRB) dollar funds, mobilised for a minimum tenor of three years and over. This is similar to RBI lending dollars to oil companies. Since OMCs are the biggest buyers of foreign currency which they use to buy petroleum/oil, RBI selling dollars directly to them will keep them away from FOREX market thereby helping the rupee to recuperate. Under the swap arrangement, the RBI will sell dollars to OMCs on condition that OMCs will repay the same amount of dollars.

However, the OMCs are unhappy over the facility as they feel insecure about the future adverse changes in the rates of dollar which could cause loss to them. There are apprehensions that if something bad- US strike on Syria impacting oil supply and further tightening of dollar (expensive dollar)- happens then there will be losses to OMCs who will have to pay the dollars they bought under swap arrangement. Although, in such a situation, RBI has the option to roll over the transactions until the rupee stabilizes, OMCs seek compensation for any future losses.

Month: Current Affairs - September, 2013