India Caps Refiners’ Dollar Buying for Iran Dues

India Caps Refiners’ Dollar Buying for Iran Dues India Caps Refiners’ Dollar Buying for Iran Dues

The Reserve Bank of India has capped weekly dollar purchases by oil refiners to pay off their debts to Iran in order to avoid pressure on the rupee, three sources told Reuters on Monday.

India is one of the biggest buyers of Iranian crude and built up a payments backlog when Iran was under western sanctions, with its refiners owing about $6.5 billion to Iran.

They have cleared $770 million in euros through Turkey's Halkbank to National Iranian Oil Co (NIOC). State-run Union Bank of India facilitated the payments.

The refiners had been holding back 55% of payments to Iran after a channel through Halkbank was closed in 2013, although payment of some of those funds was allowed after an initial temporary deal to lift the sanctions.

Last week, on the basis of an RBI advisory, India's Oil Ministry wrote to refiners saying the remaining dues can be settled in three months from May 30 and told companies to ensure demand for foreign exchange is limited to $500 million per week, the sources told Reuters.

"RBI wants to stagger payments to Iran to pre-empt any undue volatility in the domestic forex market," said one source.

The rupee touched a near three-month low of 67.77 to the dollar last week, partly due to dollar purchases to settle a portion of the Iranian oil dues the week before.

The oil ministry has asked state refiner Mangalore Refinery and Petrochemicals Ltd to coordinate with other firms to ensure that weekly payments do not exceed $500 million.

"A $500-$700 million per week kind of flow should be easily absorbed by the market," said a senior foreign exchange trader at a state-owned bank with knowledge of the RBI's guidance.

The RBI declined to comment.