IndusInd Bank and Uco Bank have become the first set of banks to have asked exporters to wind up their exposure to Iran by early August, after the US ordered re-imposition of sanctions against the Islamic country, leaving them in difficult straits. The department of commerce could soon take up the matter with the department of financial services to ensure payments of exporters and other financial dealings are not obstructed, sources told FE. Exporters apprehend if more banks follow suit, trade dealings with Iran will be hit. In a letter dated May 24 reviewed by FE, IndusInd Bank has asked exporters to offer a declaration that the entire export transaction, involving letter of credit, would be over by August 6.
Similarly, in a letter dated May 29, Uco Bank told exporters: “Payments will also be subjected to any trade restrictions/currency restrictions being put in place by the US post 08-05-2018 and as per the government of India guidelines on the date of claim.” Federation of Indian Export Organisation director general Ajay Sahai confirmed the exporters had got letters from the two banks and said they needed clarity on the issue.
Earlier this month, US President Donald Trump announced withdrawal from an Obama-era nuclear agreement with Iran and ordered sanctions to be re-imposed. The Obama administration had in 2015-16 brokered the lifting of UN sanctions in concert with the UK, France, Germany, China and Russia, which made it easier for countries across the globe to trade with the Islamic nation more freely.
Around 2011-12, a rupee-rial mechanism was put in place where up to 45% of India’s purchases of Iranian crude could be effected in rupees in exchange for items like rice, wheat and medicines that were not sanctioned by the UN. A Mumbai-based star export house, having a supply contract worth Rs 9 crore with Iran that is to be executed in the next two months, has got such a letter from Uco Bank. Payments from an Iranian importer usually take around two months.
Subsequent to the imposition of sanctions on Iran in 2011-12, Indian exporters — mainly rice suppliers — were receiving payments using the oil payments held in rupee balances at Uco Bank. The sanctions drove down India’s oil imports from Iran.
Consequently, New Delhi’s trade deficit with Tehran narrowed from $11.4 billion in 2011-12 to almost $3.5 billion in 2015-16, when the sanctions were lifted. India’s trade deficit with Iran again widened to $8.5 billion in 2017-18. Much of the payments to Indian suppliers since 2015-16 were being made in euro, according to rice exporters. The traders have now pitched for a swift revival of the rupee-rial mechanism.