The Hindu Business Line : ‘SBI move to reject LC to Iran may hit tea exports’

‘US Govt has urged banks the world over to terminate business with 3 Iranian banks — Bank Melli Iran, Bankat Mellat and Bank Saderat Iran — on grounds of security.’

G. Srinivasan

New Delhi, Nov. 28 The refusal of the State Bank of India to entertain Iranian letters of credit from a leading Iranian importer has upset the Department of Commerce’s plans to diversify into new markets as it is pitching Iran as one of the thrust markets for Indian tea over and above the efforts to develop Pakistan and Egypt markets for Indian tea.

Talking to Business Line here, the Minister of State for Commerce, Mr Jairam Ramesh, said Iran imports around 100 million kg of tea every year, of which India’s share is less than five million kgs. Being a new market, India’s tea export efforts for market diversification would suffer a serious jolt if such refusal by Indian banks take place, he said, adding that he has drawn the attention of the Union Finance Minister, Mr P. Chidambaram, in this regard to ascertain whether there has been any official communication to SBI that trade with Iran should be discouraged.

Industry sources, however, maintain that a large part of tea export payment realisation from Iran is done against Irrevocable Letters of Credit under the Asian Clearing Union (ACU) mechanism denoted in dollars.

US OFAC order

The sources said it now transpires that US OFAC (United States Office of Foreign Assets Control) has decided to cut off three Iranian banks viz., Bank Melli Iran, Bankat Mellat and Bank Saderat Iran from the US financial system on grounds of security and that the US Government has urged banks the world over to terminate business relationship with these banks.

The sources said the Tea Board was informed by the State Bank of India that it would not undertake any fresh transactions with Bank Melli Iran and Bank Mellat and in respect of Bank Saderat, its cautionary instructions already in place would continue.

Complicated situation

Industry complains that in view of this ban, the situation has become complicated for the Indian tea exporters exporting to Iran as they would be encountering difficulties to negotiate the shipping documents and incur substantial financial losses due to delayed payments.

In this context, the sources said, the tea industry has suggested using the euro as a participating currency as the transaction procedure by this process would be simpler so as to help exporters in effecting the payment realisations.

The sources said the Tea Board has asked the Department of Commerce to take up this matter with the ACU Secretariat so that the euro could be included as a negotiable currency under the ACU mechanism.