Persian Bank to reduce LC margin to 10% .

In a big boost to exports from India to Iran, the Persian Bank has agreed to reduce opening margins from 120 per cent to 10 per cent now for a letter of credit (LC) for its importers.

So far, Iranian importers were hesitant to open LC with banks, as it would mean blocking up their capital in a big way. However, with drastic reduction in margin money, they will now be going ahead with imports from India.

“Rupee mechanism issues have been sorted out and few more banks will be added to facilitate banking transactions after Navroz holidays in Iran. While dealing in Indian rupee will provide comfort to exporter and will be a natural hedge in times of volatility, the reduction in opening margins will ensure that more importers in Iran now go for purchase from India,” Rafeeque Ahmed, president of the Federation of Indian Export Organisation (Fieo) said.

Fieo had led 80-member Indian business delegation to Tehran to explore export opportunities following recent sanctions imposed by US and unilateral restrictions by European Union & Canada on Iran.

According to Ahmed, Iran is looking for joint ventures in mining, hydroelectric power and railways, would prefer India both in view of our technical competence and also for utilising oil money lying with India. “Besides, they have also shown interest in Indian IT and IT enabled services, tourism and medical tourism”, Ahmed said.

However, Indian exporters continue to be skeptical about trading with Iran. “It’s a very immature situation with no clarity on remittances. Though there are immense opportunities across sectors, it will still take some more time before Indian exporters can actually make headway into this market in a big way,” an exporter who was part of the delegation said requesting anonymity.

This has come at a time when there has been relief to domestic oil companies with finance minister Pranab Mukherjee fully exempting payments made to Iran on crude purchases from any local tax with effect from April 1. This will, henceforth, facilitate import of 45 per cent oil from Iran in Indian rupees.

Iran had in January 2012 agreed to accept 45 per cent payments on oil exports to India in Indian rupees but the same could not be implemented. It was feared that the money paid to National Iranian Oil Company (NIOC) might be considered as income generated by Iranian firm in the country and liable to be taxed. The withholding tax was up to 40 per cent, which neither NIOC nor the Indian refiners wanted to pay. Iran is India's second largest crude oil supplier accounting for some 12 per cent of its total crude oil imports. India currently pays about US $ one billion per month through a Turkish bank but there are fears that US and European sanctions against Iran may block even this route.

The bilateral trade between India and Iran stood at $13.6 billion in 2010-11 with exports from India at $ 2.7 billion while imports from Iran were $10.9 billion.

Major exports from India include cereals, inorganic and organic chemicals, iron and steel and their products, tea, coffee and spices. Mineral fuel import constitutes over 90 per cent of India's total imports from Iran followed by organic chemicals and ores.

Source : mydigitalfc.com