Officials and business representatives from both sides discussed ways of expanding bilateral commercial ties and finding solutions to impediments created by the reimposition of US sanctions against Iran.
Deputy head of ICCIMA for international affairs, Mohammad Reza Karbasi; the newly-appointed Indian Ambassador to Iran, Gaddam Dharmendra; the head of Iranian Foreign Ministry's India Affairs Bureau Mohammad Hossein Baniasad; vice chairman of Iran-India Chamber of Commerce Parham Rezaei; chief representative of India’s UCO Bank in Iran, Sabeer Nazeem; and deputy general manager of IDBI Bank, Ravi Rao, attended the event.
Indian SPV
"India has already set up a special purpose vehicle for managing our relations with Iran under the sanctions regime. This SPV has been up and running for the past six months. We are looking at how we can continue importing oil from Iran and how Iran can import legally non-sanctioned items from India. The European SPV as well as the Indian one, we hope, will maintain our trade relations with Iran," Dharmendra told Financial Tribune on the sidelines of the forum, Financial Tribune reported.
The European SPV, also known as INSTEX (Instrument in Support of Trade Exchanges), was set up by Germany, France and the UK in January 2019 to help continue non-dollar trade and circumvent US sanctions. The European side intends to use the channel initially only to sell food, medicine and medical devices in Iran.
However, it will be possible to expand it in the future. Iran says INSTEX is "a first step taken by the European side" and hopes it will cover the transactions of all goods and items with other countries as well.
"In the Indian SPV, we have taken our previous experience with Iran where we had an SPV. This goes back to pre-2016 and the JCPOA when Iran was under sanctions. We’ve taken the same example and we’ve again refined it to comply with the new American sanctions," the Indian ambassador said.
Dharmendra was referring to Iran's nuclear deal signed with world powers in 2015, the Joint Comprehensive Plan of Action, which led to the removal of international sanctions against Tehran in the following year. In exchange, Iran agreed to limit the scope of its nuclear program.
"We import energy from Iran, for which the revenues are parked in India in rupees. Iranian importers of those items (non-sanctioned items) and Indian exporters of various items, whatever is legally permitted commodities, pharmaceuticals, medicine and agricultural products, they can buy it from India and there are counterparty banks in Iran, pre-designated by the Central Bank of Iran and by the Reserve Bank of India. And these banks can now exchange and facilitate that trade through SPVs provided by UCO Bank and IDBI bank. These are basically banking aids that will pay for the trade between the two countries on non-sanctioned items,” Dharmendra said.
Role of IDBI, UCO Bank Under Sanctions
India's IDBI Bank has recently received the government nod to handle import and export transactions with Iran. It has been tasked with routing the payments.
India used to pay its third largest oil supplier in euros using European banking channels, but this channel has also been blocked from November last year.
Iran is India's third-largest oil supplier after Iraq and Saudi Arabia. It was India's second biggest supplier of crude oil after Saudi Arabia until 2010-11 but sanctions by the West over its nuclear program relegated it to the seventh spot in the subsequent years.
In 2013-14 and 2014-15, India bought 11 million tons and 10.95 million tons of crude, respectively from Iran.
Bilateral trade between India and Iran increased to $13.8 billion in 2017-18 from $12.9 billion in the previous fiscal. However, India's exports were only worth $2.5 billion to that country.
The Federation of Indian Export Organizations said more banks should get permission for trading with Iran.
"This will generate healthy competition between UCO and IDBI, encouraging them to be more customer friendly and thereby benefitting exim community," FIEO President Ganesh Kumar Gupta said.
Renewed US sanctions on Iran’s oil exports are also giving a boost to the Kolkata-based UCO Bank, which was struggling under the weight of a mountain of bad loans.
"UCO Bank expects its privileged status of processing refiners’ payments for Iranian oil shipments to add more than 8 billion rupees ($110 million) to annual earnings," Chief Executive Officer Atul Kumar Goel said.
Indian refiners are required to deposit any money destined for Iran without interest with UCO Bank during periods when US sanctions are in force.
UCO Bank has been losing money since 2015 in the absence of the float from refiners.
“Being involved in the country’s oil imports from Iran gives us access to zero-interest funds, which refiners place with us,” Goel said in a recent interview at his Kolkata office. “It will improve our net interest income as well as operating profit.”
UCO Bank was first designated by the Indian government as the payment bank for Iranian oil in 2012, after the US tightened an earlier round of sanctions against Tehran.
The bank was selected because of its limited international presence, which made it less vulnerable to any repercussions from its involvement in the oil trade, processed in euros and rupees to avoid exposure to the US banking system.
Those sanctions were lifted in 2015, leading to a drop in UCO Bank’s profits, as other Indian banks entered the business. But the lender resumed its former privileged role as US President Donald Trump pulled out of the 2015 nuclear deal last year and reimposed penalties.
India was one of eight countries benefiting from a US waiver, allowing it to import 9 million barrels of Iranian oil a month until April.
UCO Bank, which was selected by the government to pay for the imports during the waiver, said it started receiving the funds to pay for these shipments earlier this year and now has a steady float of more than 100 billion rupees.
"Money from refiners has started coming in from January and we are making payments on a daily basis to exporters. The bank is paying out more than one billion rupees a day for the oil,” Goel said.
The boost to earnings from the interest-free float may bolster the bank’s efforts to come out of a so-called Prompt Corrective Action Plan—under which lenders are restricted from making loans while they mend balance sheets—which was imposed by the Reserve Bank of India.
UCO Bank will also get an injection of about 33 billion rupees by March 31 to strengthen its risk buffers, as part of the government’s capital infusion plan announced on Wednesday.
As much as a quarter of UCO Bank’s loan book had soured as of Dec. 31, though Goel said he does not expect that to increase in the coming quarters.
Iran's Capacity to Boost Non-Oil Exports
Putting oil trade aside, the two countries have ample capacity to expand commercial interactions and this is what Iran’s private sector wants to focus on, the deputy head of ICCIMA for international affairs said.
Karbasi added that it is necessary for Iranian and Indian policymakers to remove obstacles and facilitate transactions so that the bilateral trade balance could rise.
"Even if Iran’s oil exports to India are reduced to a minimum, we still have a large capacity to export a host of non-oil products such as petrochemicals, cement, chinaware, iron and steel, fruit and nuts, leather, stones and chemicals," he said.
"On the other hand, India has the capacity to provide Iran with the needed commodities. In this respect, we at ICCIMA propose that the two embassies in Tehran and Delhi, as well as the Foreign Ministry, prepare the grounds for cooperation between the two countries, to which Iran Chamber of Commerce will lend all support.”
Latest data released by the Islamic Republic of Iran Customs Administration show Iran traded 8.54 million tons of non-oil commodities worth $3.63 billion with India during the 10 months of the current fiscal year (March 21-Jan. 20), registering an 11.65% and 11.42% decline in tonnage and value respectively compared with last year's corresponding period.
Iran’s exports to India stood at 7.08 million tons worth $1.71 billion, down 13.12% and 23.05% in tonnage and value respectively year-on-year. India was Iran’s sixth export destination during the period.
Iran mainly exported urea, methanol, ammonia and bitumen to India during the 10-month period.
India exported 1.46 million tons of goods worth $1.92 billion to Iran, down 3.82% in tonnage and up 2.32% in value YOY. India was the fifth exporter of goods to Iran over the period.
The imports mainly included semi- and wholly-milled rice, graphite electrodes used in furnaces and tea.
At the end of the Wednesday meeting, businesspeople from the two sides active in different fields, including agriculture, steel, engineering, water, ports, exhibitions and industry, voiced concerns and discussed problems related to trade and banking relations. Officials present at the event offered solutions to these problems or promised to make efforts to eliminate the obstacles.