The Hindu Business Line : Doing business with Iran

At a time when the country is desperately trying to boost tea exports to a non-traditional market (Iran, annual imports estimated at 100 million kg) comes a bombshell that the State Bank of India (SBI) has decided not to negotiate the Letter of Credit (LC) opened by one of the three Iranian banks that have been cut off from the US financial system on grounds of security. The US has also reportedly urged banks across the world to terminate business relationships with the t hree specified Iranian banks. In rejecting the LC from Iran, the SBI may have taken a cue from the US official position; but this episode raises larger issues that have implications for Indian exporters and the banking system.

At this point of time, the sequence of events is far from clear and several questions remain unanswered. When did the SBI get notice of the US advisory? Was the Iranian LC opened prior to the US advisory? Did the RBI, as the banking industry regulator, have any knowledge of this? And, finally, did the SBI act suo motu or under instructions, presumably from New Delhi? Are Indian banks obliged to fall in line with US diktats? It is reasonable to assume that the Minister of State for Commerce, Mr Jairam Ramesh, did have some of the answers when he drew the Finance Minister’s attention to this issue.

To be sure, banks are an integral part and, in some sense, drivers of foreign trade; they provide safety, security and transparency to trade transactions. By refusing to recognise documents from Iranian banks, the SBI has willy-nilly imposed an informal ban on exports to Iran, thwarted India’s tea market diversification efforts and compromised its own customer’s financial interest. As service organisations, banks owe allegiance to their customers. Very simply, without customers, banks would cease to exist. For the country’s largest public sector bank to be seen as a service provider ready to sacrifice customer interest can potentially do greater harm to the banking industry than the loss of tea business with Iran. Across the world, markets are integrating. Funds flow seamlessly from one market to the other. Distortion will result from the selective imposition of restrictions on fund flow. From political and other standpoints, it may suit the US to isolate Iran; but as a strong and growing economy, India needs to handle such issues on intrinsic merit and to protect fiercely its own interests. It is absolutely necessary for the government as also the SBI to come clean on this unfortunate episode.

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‘SBI move to reject LC to Iran may hit tea exports’

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