Indian Exporters Receive First Rupee Payments from Iran

India's exporters have begun receiving the first rupee payments from Iran, Indian government and trade sources said on Thursday, kicking off a mechanism to skirt Western sanctions which have made doing business with Tehran tougher.

About $3 billion in Iranian import arrears have accumulated since December 2010 when a previous payment conduit was closed under pressure from Washington, which is using sanctions to try to stop Tehran's contentious nuclear programme.

Payments to Indian exporters are being remitted through Iran's Bank Parsian which has opened an account with India's UCO bank, the sources said. Bank Parsian is among private Iranian banks that are free from sanctions against Iran's state-owned banks.

The agreement came after meetings between a visiting Iranian delegation and officials from India's finance and banking sectors over the past two days.

Payments (to Indian exporters) have started coming very recently through Bank Parsian's account with UCO bank, said M. Rafeeque Ahmed, president of the Federation of Indian Export Organisations, the top exporters' body, told Reuters.

Whatever has been stuck in the pipeline, that will be cleared.

Ahmed is taking part in government negotiations to find a solution to the payment problems that have hit trade between the two countries after U.S. sanctions on dollar deals. His organisation is a quasi-government body set up by the trade ministry.

Two government sources said the conduit through Bank Parsian and UCO bank was only to settle payments for Indian exports to Iran.

Indian oil importers have been paying for around $11 billion a year of crude since the middle of 2011 through Turkey's Halkbank (HALKB.IS), but this route would have been expensive for Iranian importers given sharp falls in the rial.

India was Tehran's second-biggest crude oil customer last year after China. Iranian oil accounts for about 12 percent of its needs.

Most of the Iranian arrears are for imports of iron and steel, chemicals and cereals, machinery and pharmaceuticals.

Indian rice suppliers have also reported defaults by Iranian buyers and have said they are owed at least $144 million.

With payments for oil through Halkbank now looking vulnerable to fresh sanctions, India and Iran have agreed to settle 45 percent of this trade in rupees and boost exports to narrow their trade gap. Oil buyers are waiting for tax issues to be cleared up before they use the mechanism.

India abides by United Nations sanctions on Iran, but has refused to go along with new financial measures imposed by the United States and European Union that aim to punish Iran for its nuclear ambitions.

India has pushed back the visit of a delegation to Iran to March 10-14 from this month to explore boosting exports. Ahmed will be part of that team.