The government is set to allow Punjab & Sind Bank as a nodal bank for making payments for purchasing oil from Iran. As western sanctions curb international financial payments, it was only UCO Bank through which Indian oil companies were making payments for their imports.
?Punjab & Sind bank has applied to us and the government may consider to extend the facility to them. So far UCO Bank was only payment gateway since it had no interest in Europe and America,? a government official close to the development said.
Sources, however, do indicate that the country’s largest lender State Bank of India was earlier denied for the approval as they have exposure in the sanctioned countries. Punjab & Sind Bank does not have any exposure in Europe and America. The new avenue for making payments to Iran will help Indian oil companies and other exporters & importers.
Under the rupee payment mechanism, 45% of the payments made by Indian oil companies for their imports from Iran are credited in rupees in the accounts of Iranian Banks maintained with UCO Bank. The balance 55% of the value of oil imports from Iran is paid in euros through Turkey’s Halkbank. Earlier, the Reserve Bank of India (RBI) terminated the long-standing mechanism of settling payments through Asian Clearing Union mechanism.
Iran had been pressing India for allowing Parsian Bank ? its nodal bank ? to open a branch to settle oil and other trade with India. But reports do indicate that the finance ministry has declined permission for opening the branch citing security reasons and threat of money laundering.
In June, the finance ministry issued a notification under the Income Tax Act to exempt ?in the national interest? the National Iranian Oil Company from paying taxes of up to 40%. This would reduce costs for Indian refiners, while facilitating payments to Iran in rupees.
The country’s largest buyer of Iranian crude, Mangalore Refinery and Petrochemicals Limited, has reduced its oil imports to 5 million tonnes this fiscal from 6.2 million tonnes in 2011-12. MRPL bought around 7.1 million tonnes of crude oil during the year 2010-11. Essar Oil, the second largest buyer of Iranian crude, have also reduced imports by 15% from 5 million tonnes and have already entered into contracts with South American national oil companies like Columbia and Mexico to buy crude.