The Reserve Bank of India has agreed to support Indian refiners to clear their outstanding dues to Iran for crude oil purchases worth $6.5 billion, accumulated since February 2013.
The bank is doing so to avoid a run on the rupee. The decision comes after Finance Secretary Rajiv Mehrishi last month led a four-member delegation to Tehran to discuss modalities of clearing dues, Press TV reported.
RBI will be detailing the banking channels as well as the payment schedule to clear the dues with the Central Bank of Iran.
The Indian bank, which had previously facilitated payment of oil import bill to Iran, agreed to "explore options currently available," the official said.
The debt has accumulated in bank accounts amid US-led sanctions that ban financial transactions with Iran. Last month Iran and six world powers—United States, Britain, France, Russia, China and Germany—sealed an accord to limit Iran's nuclear energy program in return for ending sanctions, which will open up banking channels.
Indian refineries have already been asked to stock up on dollar and euro reserves in overseas accounts to avoid draining the rupee.
According to the Press Trust of India, citing an unnamed official, RBI is exploring options to assist the refiners in paying the past dues to CBI.
From February 2013, Indian refiners like Essar Oil and Mangalore Refinery and Petrochemicals have been paying 45% of payment in rupees through UCO Bank, Kolkata, which is due on purchase of crude oil from Iran while the remaining has been accumulating thereafter.
They paid nearly $3 billion in six installments through a limited payment channel during the last fiscal year. Since then, their outstanding debt to CBI has reached over $6.5 billion.
India pays 55% of its debts to Iran for oil purchases in euros and the rest in rupees. Payments in euro through Turkey’s Halkbank were halted in February 2013 under US pressures, leading to the current debt.
Currently, the outstanding dues of Iran for crude oil purchases stand at $3.34 billion for Essar Oil, $2.49 billion for MRPL, $581 million for IOC, $97 million for HPCL Mittal Energy and $29 million for Hindustan Petroleum Corp. Besides, about Rs17,000 crore were lying in Iranian account with UCO Bank.
Earlier in 2011, when US and western powers blocked payment channels to limit Iran's nuclear activities, RBI facilitated oil payments to Iran via Turkey.
In the past two fiscal years, New Delhi restricted import of Iran oil at 11 million tons under US pressure but with the easing of sanctions, it would look to increase imports provided Tehran continues to extend fiscal facilities like insurance and shipping as well as 90-day credit period, on oil it sells to India.
PTI said India is keen to stagger the repayment instead of doing it in one go. New Delhi also seeks to raise oil imports but at the favorable terms which Tehran granted it during years of sanctions.
