With India no longer importing oil from Iran, UCO Bank is looking at other avenues to keep the rupee payment mechanism with Iran alive.
According to A K Goel, CEO of UCO Bank, the lender is in talks with importers to use the mechanism for other imports, Business Standard reported.
“In the last few months, there has been no fresh inflow into the payments account. We are exploring the opportunity to import other commodities, such as fresh fruits, under the mechanism. Our role here is not only settlement, but also to facilitate trade between India and Iran,” said Goel.
In the wake of US sanctions on Iran, India cannot engage in dollar-denominated trade with Iran. Hence, a special rupee-rial trade mechanism has been put in place.
Under this, oil refineries from India deposit funds into designated banks to import oil from Iran. These rupee funds are then used to clear dues of traders that export from India to Iran.
UCO Bank and IDBI Bank are the two banks that support this payment mechanism, and such deposits make up for a bulk of low-cost deposits for the lenders.
The banks were chosen because of their limited international presence, which made it less vulnerable to any repercussions from its involvement in trade with Iran.
However, even as oil imports have dried up, exports have not fallen as much.
According to government data, imports from Iran stood at nearly $13 billion in 2018-19, which came down to nearly $1.35 billion between April and January in 2019-20.
In contrast, the fall in exports was much less. Exports to Iran stood at $3.5 billion in 2018-19, which fell to $2.80 billion between April and January of this financial year.
Rice, tea, sugar and pharmaceuticals are key items India exports to Iran, with rice accounting for the largest share.
The so-called Rupee Payment Channel between India and Iran was first set up in 2011, by opening special rupee Vostro accounts for Iranian banks with UCO Bank in India. The channel became fully operational in December 2018 following reimposition of US sanctions against Iran.
Donald Trump pulled out of the 2015 nuclear accord with Iran in May 2018 and reimposed harshest ever economic sanctions against Iran, threatening that he would also boycott all transactions involving the country.