The special trade mechanism set up by India's UCO Bank for processing oil import payments from Iran became operational on Friday, an official at the Foreign Ministry in Tehran said.
"Following talks between Iranian and Indian authorities, India's Finance Ministry will send a directive to the UCO Bank on Friday for the mechanism to become operational," Mohammad Hussein Bani Asadi , director for India at the Foreign Ministry said.
Bani Asadi made the announcement at an event late Wednesday at the Tehran Chamber of Commerce, Industries, Mines and Agriculture with the theme of "India, a Window Beyond Sanctions". It was attended by the Indian Ambassador Saurabh Kumar and business leaders from the two countries.
Bani Asadi told the Financial Tribune that part of the payment process involves a tax exemption notification for Iran (since rupee accounts normally must pay taxes) and after that the accounts are activated.
In his address Ambassador Kumar explained that as part of the payment mechanism, UCO bank has opened rupee Vostro accounts with five Iranian banks so they can deposit the oil money in those accounts.
According to Kumar, out of the 15 banks that were identified, five were under US secondary sanctions and from among the remaining 10 five were chosen.
Under the exemptions granted last month, the US allowed India, which is Iran's second biggest oil customer after China, to import as much as 300,000 barrels a day of Iranian oil for 180 days.
Iran will use the money to import goods ranging from food to medicine and settle the dues in Indian rupees. It can also use the money to pay costs, including administrative expenses of its diplomatic missions in India.
Lack of direct banking ties between Iranian banks and UCO after the US reimposed sanctions in November, led to serious disruptions for Iran's trade with India. A representative of an Iranian pharmaceutical company told the Tribune that due to restrictions at UCO, her company was losing its trade partners in India because of the delays in money transfers to that country.
Iran can also deposit 50% of its money in the accounts, the interest on which will be paid, or as Bani Asadi said, transfer the amount to Europe in euros should Europe's Special Purpose Vehicle become operational.
The European Union’s foreign policy chief Federica Mogherini said earlier this month, the system which aims to facilitate non-dollar trade with Iran and circumvent US sanctions could be in place before the year is out.
As noted by Kumar, whose three-and-half-year tenure in Tehran will end soon, Iran's receipt from oil export will amount to An estimated $540 million a month if international crude prices remain in the region of $60 a barrel.
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.
Bilateral Trade
As punctuated by Iranian and Indian participants, the two countries have enormous potential for trade expansion given mutual ties that go back thousands of years.
Mojtaba Mousavian, director of foreign trade for Asia & Oceania at the Trade Promotion Organization of Iran, said two upcoming events, namely the imminent opening of a private Iranian bank in India and finalizing the Iran-India Preferential Trade Agreement would help put relations on fast track.
Measures to ease visa issuance by both countries is another important factor to meet that goal, Mousavian said.
Indo-Iran annual trade currently stands at $15 billion but the two sides have set the bar higher to $20 billion, Kumar said. "The potential is far beyond this figure."
Iran is currently the 29th export destination for Indian goods and the 11th biggest exporter to the South Asian nation.
Indian exports to Iran stood at $2.65 billion during the last financial year, including rice, spices, tea, yarn, medicines and industrial products, according to India’s Directorate General of Commercial Intelligence and Statistics, an arm of that country’s ministry of commerce and industry.
