RBI officials have sought to clear the air over recent payment rules which some suggest will curb India’s trade with Iran, especially in the oil sector, saying that the central bank actually aimed at facilitating it.
The move is aimed at helping importers, who are facing difficulties in settling payments through dollar or euro due to sanctions against Iran for nuclear proliferation, a key RBI official explained. The central bank’s “bona fide move” to smoothen oil imports from Iran, the second biggest supplier of crude to India, was misinterpreted by certain quarters as a step to curb these imports, the official said.
Meanwhile, on Friday, RBI Governor D Subbarao said that RBI was trying to sort out the vexed issue of payment for oil supplies from Iran. ”... The RBI was first to identify the problem and battle the problem. RBI was ensuring that oil supplies come from Iran,” Dr Subbarao said at the Second Business Standard Annual Lecture here.
Last month, Reserve Bank of India allowed oil importers to settle payment in any currency outside of the Asian Clearing Union (ACU) mechanism, under which its members -- including India and Iran -- are allowed to pay for oil and gas only in euro or dollar.
“The provisions have been reviewed and it has now been decided that payment for import of oil or gas should be settled in any permitted currency outside the ACU mechanism,” a RBI notification had said.
The RBI move means that India can now import oil from Iran and settle the payment in any currency, other than dollar and euro.
Later, the new provisions were extended to all current account trade with Iran. Current account includes trade in goods and services as well as some investment income.
“Our move was facilitative and not restrictive,” the official said.
Central banks and monetary authorities of Iran, India, Bangladesh, Bhutan, Nepal, Pakistan, Sri Lanka, Myanmar and Maldives are the members of the ACU. While the US has imposed ban on various imports from Iran and importers were finding it difficult to settle the payment in dollars, Europe has allowed oil imports from Iran. However, European nations insist on a certificate from the importers that payment will be made only for oil imports.
But importers are encountering problems because it is not clear as to who has to give the certificates, central banks or the bank which is guaranteeing the payment. Also, the payments are made on net basis, making it difficult to go through the composition of trade. Under this method, if country A buys goods worth Rs 200 from country B, and country B has bought goods worth Rs 100 from country A, then A has to give only Rs 100 to B.
SBI no to fresh LCs
On a bankers’ meeting with the officials of Petroleum and Finance Ministries on Friday, the source said that they discussed the details of the new mechanism. After the meeting, State Bank of India refused to facilitate temporary payments through a proposed alternate channel, a move that can potentially halt oil imports from Iran.
The bank has refused to issue fresh Letters of Credit (LCs) to public and private sector refiners, who import some 12 million barrels of crude oil from Iran every month, said an official of the nation’s largest lender. “There are uncertainties involved. We need to be sure about the payment mechanism,” the SBI official said.
Earlier last week, India and Iran had agreed to route payments through the Hamburg-based European-Iranian Trade Bank AG (EIH), an Iranian bank that is already under US sanctions.
Head-quartered in Tehran, the ACU was established in 1974 at the initiative of the United Nations Economic and Social Commission for Asia and Pacific (ESCAP), to promote regional co-operation. The main objective of the clearing union is to facilitate payments among member countries for trade transactions.