Days after Reserve Bank of India (RBI) clamped down on the main conduit Indian companies use for paying Iranian oil, State Bank of India (SBI) has refused to facilitate payments through an alternate temporary channel, a move that can potentially halt import of oil from Iran.
SBI has refused to issue fresh Letters of Credit (LCs) to public and private sector refiners who import some 12 million barrels of crude oil from Iran every month, an official with the nation's largest lender said.
"There are uncertainties involved. We need to be sure about the payment mechanism," the official said after a meeting called by Finance Ministry to discuss the row.
In absence of LC, which is a letter from a bank guaranteeing the buyer's payment to seller on time and for the correct amount, one cargo for Hindustan Petroleum (HPCL) is stuck at Iranian ports.
One cargo meant for Mangalore Refinery (MRPL), India's largest importer of Iranian crude, is being loaded today but it is uncertain if Iran will deliver it in absence of a LC.
There has been no disruption in crude oil supplies so far as LCs, requisitioned prior to the December 23 RBI order, were being opened. SBI official said no LC is being opened now.
Industry sources said SBI wants oil firms to make advance payments for the crude imports, a proposal which is not acceptable to public sector refiners who fear that Iranians cannot be held accountable in case of default in delivery once money is transfered in advance.
Alternatives such as SBI facilitating payments on corporate guarantee would be discussed in second round of meeting at the finance ministry, they said.
The RBI on December 23 said that all trade-related payments with Iran had to be made outside the Asian Clearing Union, a regional clearinghouse through which most India-Iran trade was being conducted.
Earlier this week, India and Iran had agreed to route payments through Hamburg-based European-Iranian Trade Bank AG (EIH), an Iranian bank that is already under US sanctions.
It was said that SBI could transfer money from its Frankfurt branch to the bank but SBI has so far refused to play ball fearing it could face sanctions by the US.
EIH has not been sanctioned by the United Nations or the European Union. But in September, the US Treasury blacklisted the bank saying it provided a financial lifeline to Iranian companies that it alleges support weapons proliferation.
A finance ministry official said SBI would take suitable precautions to avoid possible US sanctions due to any dealings with the blacklisted EIH.
"We can look at making the temporary arrangement more permanent if it works out. An Indian delegation will be visiting Tehran next week to discuss the issue," he said.
