RBI to put curbs on settlement of trade deals
NEW DELHI: India's strategy of straddling two boats on its relationship with Iran seems to be tying it in knots. Under pressure from the US to act against Iran's nuclear ambitions, the government, which had got the Reserve Bank of India (RBI) to put curbs on settlement of trade deals with the West Asian country, is now finding itself in a situation where it has to deal with pressure from local oil companies as well as Iranian authorities.
Domestic oil companies such as ONGC and IOC are finding it tough to import crude due to payment settlement problems. Their bankers such the State Bank of India, Punjab National Bank and Indian Overseas Bank have no solution in sight as they themselves are trying to figure out the new rules. Iranian crude accounted for 16% of the country's oil imports in 2009 and was the second biggest contributor after Saudi Arabia (18% of imports).
Last week, the RBI asked importers to settle their accounts outside the Asian Currency Union in currencies other than dollar and euro, leaving oil companies to pay for the crude only in rupees.
Besides, bankers and oil companies said under the amended rules, Indian banks have to settle the account directly instead of the Iranian central bank transacting with the RBI. The Iranian central bank has refused to deal with Indian banks individually, which could expose it to default risks.
With the prospects of oil supplies getting affected, finance secretary Ashok Chawla on Tuesday met executives from several banks, oil companies as well as officials from the RBI and finance ministry but sources said the meeting failed to arrive at a solution. While one option was to enter into an arrangement on the lines of the rupee-rouble trade with Russia, with the value of the Indian currency linked to the Iranian rial, but Tehran insists that it can only be done if an inter-governmental agreement is signed.
"That's a political call that the government has to take. But it looks difficult given the pressure from the US and other countries to curb trade and other exchanges with Iran," said a source.
Before the RBI circular was issued last week, the settlement between Iranian and Indian central bank was done in dollar. -PB News