Ru­pee pay­ment snags in Indo-iran trade

The Pak Banker - - Front Page - Te­jin­der Narang

RE­CEIV­ING pay­ments from Iran for ship­ments of In­dian com­modi­ties against for­mal con­tracts can be a nerve-wrack­ing ex­pe­ri­ence for the ship­pers. This is de­spite com­pli­ance with ir­rev­o­ca­ble let­ter of credit (LC) re­ceived through UCO Bank nom­i­nated by the In­dian side for trans­act­ing trade in ru­pees.

Lack of aware­ness of Ira­nian bank­ing sys­tem, their shift­ing trade pri­or­i­ties; im­pact of US sanc­tions; ex­treme volatil­ity in ex­change rates of ri­als and in­fir­mity in the ru­pee pay­ment ar­range­ments of UCO Bank are some of the con­cerns faced by both coun­tries. The RBI may scru­ti­nise the glitches be­fore ma­jor out­stand­ing dues in­crease sub­stan­tially, es­pe­cially be­cause of sus­tained pres­sure gen­er­ated by the US trade em­bargo on Iran.

Traders who ear­lier ben­e­fited by ex­ploit­ing busi­ness op­por­tu­ni­ties in Iran in­creased their ex­po­sure only to re­alise that their prof­its evap­o­rated in the sub­se­quent deals due to mas­sive de­lays in re­mit­tances spread over three-six months. In Jan­uary 2012, Iran agreed to ac­cept 45 per cent pay­ment of crude oil in ru­pees, out of the $12-bil­lion an­nual im­port. The bal­ance 55 per cent is paid to Iran through other chan­nels of free for­eign ex­change via Turk­ish banks, for in­stance. The ru­pee equiv­a­lent of $5 bil­lion or Rs 30,000 crore is to be de­posited with UCO Bank an­nu­ally in the ac­count of Bank Markazi the cen­tral bank of Iran. Four Ira­nian banks Bank Par­sian, Sa­man Bank, Pasar­gad bank and EN Bank have been au­tho­rised to utilise these ru­pee funds. In­dian ex­porters can claim ru­pee pay­ments from UCO Bank against LCs opened by these Ira­nian pri­vate banks af­ter re­ceiv­ing their spe­cific au­tho­ri­sa­tions. The Gulf coun­try can also re­mit 100 per cent ad­vance pay­ment but such cases are rare.

The bi­lat­eral agree­ment is meant to bal­ance the in­ter­est of both sides. It gives In­dia the flex­i­bil­ity of par­tial ru­pee pay­ments, while si­mul­ta­ne­ously pro­vid­ing ac­cess to Iran to buy vi­tal agro and other es­sen­tial goods for which sanc­tions may be hurt­ing them. The Dubai route for ef­fect­ing In­dian pay­ments which was the pre­ferred chan­nel for the last few years has now been blocked by US' ef­fec­tive polic­ing on UAE's bank­ing sys­tem. Pay­ments of 1121 va­ri­ety par­boiled rice, tea, corn, su­gar and soymeal from Iran have been cir­cum­vented from Dubai to UCO Bank. Iran also in­tends to fol­low the same mech­a­nism for po­ten­tial sup­plies of wheat from In­dia.

The op­er­a­tional pro­to­col is re­plete with many loose ends on Ira­nian and In­dian sides.

The first snag is the con­sid­er­able de­lay in es­tab­lish­ing ru­pee LC even though 120 per cent pay­ment in equiv­a­lent ri­als is made by the lo­cal buyer to the open­ing bank.

The Ira­nian im­porter is put in a "queue" with­out as­sign­ing any rea­son, or with­out in­di­cat­ing any time­frame for trans­mis­sion of doc­u­men­tary credit. The In­dian seller, in an­tic­i­pa­tion of re­ceipt of LC, in­vests funds for pro­cure­ment and dis­patches cargo to the load port know­ing fully well that ei­ther the LC may not be re­ceived on time or the buyer may with­draw re­quest for es­tab­lish­ing the LC due to de­cline in prices or the seller it­self un­will­ing to ship due to up­ward price swing.

This is akin to play­ing dice of "head or tail". In­deed, a pre­cip­i­tous predica­ment. If doc­u­ments are sent on "col­lec­tion" ba­sis through UCO Bank, the sit­u­a­tion can worsen.

The sec­ond hur­dle arises when the Ira­nian im­porter has to pro­vide ev­i­dence for re­ceipt of shipped goods at the dis­charge port by fur­nish­ing a "green" slip to the Ira­nian LC open­ing bank. Re­mit­tances are again as­signed in a "queue" where ran­dom­ness rules with pro­cras­tina- tion. Pay­ments to all ship­pers get stuck or trickle as mi­cro in­stal­ments.

The third prob­lem: UCO Bank is un­able to pro­vide any re­lief by ef­fect­ing pay­ment. It sim­ply acts as a courier and deb­it­ing agent of Ira­nian banks. How can the RBI/ In­dian Gov­ern­ment ac­cept a sit­u­a­tion wherein goods have left In­dian shores against valid LCs, and the ti­tle stands trans­ferred to Ira­nian buy­ers, but dis­bur­sal of funds in In­dia is held up from the Ira­nian banks for an un­known pe­riod.

All duty draw­back ben­e­fits for ex­ports and fa­cil­ity of 'no with­hold­ing tax' are ap­pli­ca­ble to this ru­pee ac­count.

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