India to Place €2.5 bn as Initial Corpus in The Local Rupee Accounts of Iran's Central Bank to Clear.

NEW DELHI: India and Iran have worked out a payments solution to the bilateral trade that had almost stalled because of the US sanctions on Iran.

India will pay for at least half of the oil and non-oil imports from Iran by depositing the equivalent rupees in accounts opened with Indian banks, a government official told ET. The balance trade will be settled through dollar payments routed via foreign banks.

"This will also provide relief to our exporters who have not received payments for an estimated 1,800 crore of goods shipped since December," the official added.

Iran will use the rupee funds to pay for goods it imports from India, to fund already committed investments in petrochemical sector and to buy Indian government bonds.

"The RBI will place 2.5 billion that India owes Iran under the previous ACU (Asian Clearing Union) payment regime as initial corpus in the rupee accounts of the Iranian Central bank BMJI," the official said.

The issue was discussed in a recent meeting between Indian finance ministry officials and a delegation from the Central Bank of Iran.

To begin with, the Iranian central bank will be allowed to open rupee accounts with the IDBI Bank and UCO Bank. BMJI has submitted forms for opening the accounts, the official said.

India has been facing problems in carrying out both oil and non-oil trade with Iran since December 2010 when US sanctions against the country forced the RBI to suspend settlements through the ACU, a payment arrangement for Asian countries.



India managed to clear 4 billion dues through Turkey's Halkbank. The country is also in talks with banks in Russia and South Korea, both countries that have trade relations with Iran.

Carrying out trade through rupee accounts in Indian banks would, however, provide a more lasting solution to the problem as international banks can back out anytime due to US pressure, as happened with Germany's EIH bank that channelised part of India's oil dues earlier this year.

Although miniscule compared to oil trade, India's non-oil trade with Iran is also significant. India's exports to Iran during April-December 2010 was $2 billion which is comparable to non-oil imports worth $1.2 billion from Iran.

India imported crude oil and related products from Iran worth $9.3 billion in 2010-11. India's total imports from Iran during the year was $10.92 billion while its exports to the country was $2.74 billion.

"We have received several complaints from exporters whose payments are stuck there. Iran is a significant market for them and they do not want to lose it. Hopefully, their grievances will now get addressed," another official told ET.

BMJI and RBI will identify designated banks in Iran and India to open letters of credit that would include exchange rate and other payments conditions. It was also agreed that both sides will identify additional banks for routing payments, the official added.

Source : economictimes.indiatimes.com