India is reportedly working on a new payment mechanism for trade with Iran after indications emerged that the previous one may soon lose its efficiency.

The previous mechanism involved a barter-like scheme that allowed India to make some oil payments to Tehran in rupees through a small state bank, UCO Bank.

The same bank was used to make rupee payments to Indian merchants for their exports to Iran. The payments were made from the money that New Delhi owed Tehran for previous oil purchases and had been deposited over time at UCO.

However, recent indications show that the deposit of rupees at the bank for previous oil purchases from Iran was already running dry, Reuters reported. 

Since sanctions were partly lifted early last year the rupee account has been run down by more than 90% to just Rs2,000 crore ($305 million) because Indian refiners have resumed paying for Iranian oil in euros, the news service wrote in a report on Wednesday.

Whilst the federal government and central bank have approved oil payments in euros — which Iran prefers because the currency is readily convertible — they have not given the all-clear for trade in the opposite direction to be settled in other currencies, leaving exporters stuck.

“We are working on a mechanism through euros and looking for a common correspondent bank in Europe to act as an intermediary for India and Iran,” Reuters quoted R.K. Takkar, chairman of UCO Bank, as saying. “The euro payment system has not yet crystallized,” he said, adding the government was working to find a solution.

(source: presstv)