CRISIL has enhanced the rated amount on Indian Oil Corporation on the bank facilities and Rs 50 billion non-convertible debentures (NCDs) programme and has withdrawn its rating on Rs 100 billion short-term debt (including commercial paper). The rated amount enhanced to Rs 808 billion from Rs 708 billion for total bank loan facilities.

The ratings continue to reflect CRISIL's belief that IOCL will remain strategically important to the Government of India (GoI), and will continue to play a key role in implementing GoI's socio-economic policies. The ratings also reflect CRISIL's belief that GoI will continue to support IOCL by absorbing a large portion of the company's under-recoveries on sales of regulated petroleum products.

However, in the wake of increased volatility in crude oil prices and foreign exchange (forex) rates and in the absence of an institutionalised mechanism for sharing of under-recoveries in the oil-marketing sector, IOCL's credit risk profile will be sensitive to the extent of, and timeliness in, GoI's support for IOCL maintains the prices of sensitive products at the level indicated by GoI, except for petrol, the pricing of which has been decontrolled. In CRISIL's opinion, the public policy role played by IOCL makes it morally binding on GoI to support IOCL and its key stakeholders, including lenders.

Given the volatility in crude oil prices and forex rates, the financial health of oil-marketing companies (OMCs) such as IOCL remains sensitive to the extent of, and timeliness in, support from GoI. The ratings may be downgraded if crude oil prices increase and there is inadequate support from GoI to compensate the under-recovery, or there is delay either in support from GoI or in increase in petroleum product prices (diesel, kerosene, and liquefied petroleum gas), leading to a sharp increase in the under-recovery level. Conversely, the outlook may be revised to 'Stable' if GoI introduces a mechanism to ensure timely and adequate compensation for IOCL's under-recoveries, or decontrols pricing for most of IOCL's sensitive products, which would enable the company to maintain its financial risk profile.

Shares of the company declined Rs 7.15, or 2.54%, to settle at Rs 274.35. The total volume of shares traded was 53,595 at the BSE (Monday).