Indian Oil, HP, BP To Get Dollars As RBI Rushes To Rescue Rupee

The Reserve Bank of India (RBI) will meet the entire daily dollar requirements of Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) through a special facility from October 12, as the central bank steps up efforts to ease pressure on the rupee.

The facility has been introduced following an assessment of prevailing market conditions, the RBI said in a statement on Saturday, October 10.

Under the window, the central bank will sell dollars to the three public sector oil marketing companies (OMCs) through designated banks. The arrangement will remain in force until further notice.

The move is aimed at shifting a substantial source of dollar demand away from the spot foreign exchange market, where importers' requirements have added to pressure on the Indian currency.

RBI Tightens Forex Rules Alongside Dollar Support

Alongside the special window for oil companies, the RBI announced a series of regulatory measures to strengthen discipline in the foreign exchange market and ensure orderly trading.

Under the new rules, authorised dealers cannot allow users to rebook rupee-linked foreign exchange derivative contracts that have been cancelled after the directions were issued. Rolling over contracts upon maturity will continue to be permitted, subject to existing regulations.

The RBI has also reduced the threshold for taking positions in foreign exchange derivatives without establishing the underlying exposure from $100 million to $5 million.

The revised limit applies both to contracted exposures hedged through authorised dealers and to positions in exchange-traded currency derivatives involving the rupee.

Additionally, dealers must obtain an undertaking from users confirming that the same underlying exposure has not been hedged through another authorised dealer. Where an exposure is split across dealers, the amounts already booked must be disclosed.

New Reserve To Raise Cost Of Dollar Hedging

A separate circular introduced a Foreign Exchange Risk Reserve (FERR) for rupee-linked derivatives used to hedge current account transactions where users buy foreign currency against the rupee.

For eligible contracts with a notional value exceeding $2 million, authorised dealers must maintain a cash reserve with the RBI equivalent to 20% of the contract's rupee value.

The amount must be maintained in India until the contract terminates, with dealers required to report the reserve daily.

The measures are intended to curb excessive derivative positions, improve verification of genuine hedging needs and prevent users from bypassing limits through multiple transactions.

Rupee Pressure Keeps RBI On Alert

The announcements come as the rupee has weakened by more than 7% this year, as per Reuters, amid elevated oil prices, rising global bond yields and strong demand for dollars from importers. Exporter dollar supply has not kept pace with demand, Reuters reported.

The measures could ease immediate demand for dollars, but their effectiveness will depend on oil prices, capital flows and the trajectory of the rupee in the coming sessions.

The currency strengthened by around 0.6% against the dollar in the non-deliverable forward market after the measures were announced, although trading was thin, per Reuters.