New Delhi refuses Tehran request to set up branches of Indian banks in Iran

Prime Minister Modi and Iranian President Hassan Rouhani in February 2019. | Narendra Modi's official Twitter handle @narendramodi

Iran had sought Indian bank branches in the country to ease business between the two nations.

New Delhi: India is believed to have turned down a request by the Iranian government to open branches of Indian banks in Tehran even as New Delhi allowed the country’s Bank Pasargad to open a branch in Mumbai by April this year.

“We want the payment mechanism that has been set up right now to be streamlined further so that we can sell more and more goods to India and not just oil,” Gholam Reza Ansari, Deputy Foreign Minister of Iran for Economic Diplomacy, told ThePrint.

“For that, we have asked India to establish branches of some of the leading Indian banks in Tehran. In the absence of Indian banks there, our exporters as well as importers are facing a lot of difficulties to do business smoothly,” he added.

Ansari said that Iran, which is under US sanctions, would like to buy more industrial machinery and steel products from India. The country also has plans to expand the basket of goods it sells to India, he added.

“We do not want to sell just oil and dry fruits to India,” he added. “We are now seriously thinking of selling urea, fertilisers and other high-quality Iranian goods to India. Talks are on.”

However, India believes that the payment mechanism that was in place during the last round of sanctions is the most effective system and “there is no need at all” to establish bank branches in Iran, said an official in the Ministry of External Affairs (MEA).

‘Will continue to import Iran oil’

As of now, India pays Iran in Indian rupee (INR) for all its purchases. Iranian exporters then convert it to rial, while in most cases the Indian rupee is used to make payments for the products Iran imports from India. This entire transaction is worked out through Indian and Iranian banks based on Letters of Credit (LoC), which are guarantees issued by banks to other banks, especially overseas, for payments between importers and exporters.

In November last year, India, along with seven other countries, was granted a waiver for six months from Washington, which seeks to penalise nations transacting business with Iran.

The Trump administration in the US had last year withdrawn from the 2015 Iran nuclear deal — that had seen the western countries free Iran of economy-crippling sanctions — and reinstated the restrictions.

The waiver ends April. India is expected to gradually reduce import of oil during that period.

“We have requested India to seek an extension of the waiver from the US,” Ansari said, echoing the demand made by Iran Foreign Minister Javad Zarif during his visit to India last week.

But, according to sources, India has informed Iran that it will not be feasible for New Delhi to ask for an extension from the US as yet.

“The matter was extensively discussed during the India-US 2+2 ministerial dialogue,” the MEA official said. “There is no need to seek for an extension.”

Last week, the Trump administration threatened to impose further economic sanctions on Iran, but India has maintained that it will continue to import Iranian crude oil to fulfil the country’s energy needs.

“We have had several rounds of meetings with Iran and several other stakeholders. I can tell you that India continues to import oil from Iran,” MEA spokesperson Raveesh Kumar said Friday, 11 January, during his weekly media briefing.

“We have got a waiver in this regard and we will continue to be engaged with all the stakeholders as far as matters related to India’s energy security are concerned,” he added.

Meanwhile, on Saturday, the US special representative for Iran, Brian Hook, told an industry conference in Abu Dhabi that the Trump administration was unlikely to extend the waiver to the eight countries – also including China, Japan and South Korea – that buy Iranian oil.