NEW DELHI: India is exploring setting up a new payments mechanism for trade with Iran, after its old sanctions workaround broke down, as state banks remain fearful of handling payments from Tehran in case the United States imposes a fresh financial embargo.
US President Donald Trump has denounced an agreement between Iran and major powers on its nuclear programme as a bad deal, and his administration has put Tehran “on notice” after the test-firing of a ballistic missile.
Under previous Western sanctions, India had devised a barter-like scheme acceptable to Washington that allowed it to make some oil payments to Tehran in rupees through a small state bank, UCO Bank.
Indian companies were then able to receive payments for goods exported to Iran using the oil money held in non-convertible rupee balances at UCO, maintaining a trade lifeline between two countries with long historical ties.
But since sanctions were partly lifted early last year the rupee account has been run down by more than 90 percent to just 20 billion rupees ($305 million) because Indian refiners have resumed paying for Iranian oil in euros.
Whilst the federal government and central bank have approved oil payments in euros – which Iran prefers because the currency is readily convertible – they have not given the all-clear for trade in the opposite direction to be settled in other currencies, leaving exporters stuck.
“We are working on a mechanism through euros and looking for a common correspondent bank in Europe to act as an intermediary for India and Iran,” said RK Takkar, chairman of UCO Bank.
“The euro payment system has not yet crystallised,” he said, adding the government was working to find a solution.
The Reserve Bank of India (RBI) said some Iranian banks had applied to open branches in India, but gave no indication when it might approve settlement of trade with Iran in currencies other than the rupee.
“Due to the geopolitical situation around Iran, and international sanctions-related measures, correspondent banking relationships are difficult,” the central bank said in a written reply to questions submitted by Reuters.
Courtesy: Reuters
