Oil cos lift bank loan growth amid high rates

By Kaustav Roy

MUMBAI (Reuters) - Demand for funds from companies, including oil refiners, pushed up loan growth at banks by a quarter on year in August despite high interest rates as wobbly stock markets made raising equity capital unattractive.

Outstanding bank loans as of Aug. 15 rose 25.9 percent on year, according to data from the Reserve Bank of India (RBI) released on Friday.

The RBI lifted its key lending rate three times in June and July to a seven-year high of 9 percent.

"There is demand from the oil companies and the fertiliser sector," said M.V. Nair, chairman and managing director, Union Bank of India. "Its an unexpected area".

Oil refiners have been borrowing short-term loans to fund their import bills, added Bhaskar Sen, executive director, Dena Bank, a state-run bank. India's oil imports rose 69.3 percent in July on year to $9.48 billion, government data showed.

"We are looking at a mix of options including bank loans from foreign and domestic banks" to fund working capital needs, said S.V. Narasimhan, director (finance), Indian Oil Corp.

State-run oil refiners buy crude oil at near-market rates while the Indian government caps prices of widely consumed fuels such as petrol and diesel to help the poor and ease inflationary pressures although partly compensates them for their losses.

This has led to under-recoveries for oil firms as crude oil prices reached an all-time peak of $147.27 on July 11 before retreating around a fifth since then.