India seeks $4 billion for oil bill from citizens abroad Filed: 09/22/2000

Mumbai, Sept. 22 (Bloomberg)  India, Asia's fourth-biggest crude oil consumer, is planning to raise as much as $4 billion in deposits from its citizens abroad to prevent the rising cost of oil imports eroding foreign currency reserves.

State Bank of India Ltd., the country's biggest commercial bank, said it plans to raise the dollar deposits to boost its own reserves. About 25 million Indians work in the U.S., Middle East and Europe, keeping close ties with home.

"It is basically meant to finance the country's oil bill," said Shekhar Sathe, chief executive officer at Kotak Mahindra Mutual Fund, which manages about $220 million.

Global oil prices, near ten-year highs, are likely to increase India's oil import bill by $6 billion in the year to March 31, or about one-sixth of foreign currency reserves. Foreign investment in India has also tumbled. In the four months to July, foreigners invested $125 million in stocks and bonds, an 87 percent drop from a year ago.

G.G. Vaidya, State Bank's chairman, said the decision to raise dollar deposits was the bank's own initiative. State-run oil importing companies, however, often buy dollars from State Bank, which is two-thirds owned by the government.

State Bank's decision comes a day before India's cabinet meets to consider rising oil prices. After the meeting Saturday, the government may announce an increase in domestic fuel prices to partially offset the cost of rising international prices.

Raise Prices

This week Ram Naik, India's minister of petroleum and natural gas, said at a conference in Jakarta that he expects India's oil import bill to rise to as much as $18 billion in the year ending March 2001, from $12.5 billion last year. He said bonds could be sold to overseas Indians, and targeted at those in the Middle East, to raise funds.

Naik said the government would raise domestic fuel prices and cut central government taxes on fuel.

India imports 70 percent of its oil requirements and will pay almost 30 percent of its total import bill buying crude oil from abroad, said Arjuna Mahendran, head of economic research for Asia at S.G. Securities (Singapore) Pte.

"India could be hit very badly" by the surge in oil prices, said Mahendran. "They have high refining capacities but the problem is they haven't done much for exploration of new sources of crude oil and gas."

It won't be the first time State Bank has raised funds from Indian nationals overseas.

In 1998, the bank sold $4.2 billion of Resurgent India Bonds maturing in 2003 to Indians overseas when western countries imposed economic sanctions in response to India's nuclear tests that year. The bonds, which aimed to show India could counter sanctions, then paid an interest rate of 7.5 percent.

In 1991, expatriate Indians lent State Bank $1 billion when foreign currency reserves dipped to less than $1 billion, to help prevent a balance of payments crisis.

State Bank of India is yet to decide how much interest it will pay on the deposits and who will bear the exchange-rate risk. The plan will begin before the end of October and may remain open for a month, Vaidya said.

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-- Martin Thompson (mthom1927@aol.com), September 23, 2000