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EghtesadOnline: Just weeks before US reimposes sanctions on Iran, the Indian government has approved a proposal from Iranian private lender Bank Pasargad to open a branch in Mumbai.

According to Indian Express, the Indian Finance Ministry has conveyed to the Reserve Bank of India that it has no objection to allowing the Tehran-based Bank Pasargad open its branch in India. 

The clearance to the Iranian bank comes amid US plans to reimpose sanctions and calls on other countries to minimize oil purchases from Iran. The first US sanctions on Iran will start from Aug. 6 and a secondary set will begin from Nov. 4, according to Financial Tribune.

The Federation of Indian Export Organizations had earlier approached RBI to allow the entry of Iranian banks into India to facilitate bilateral trade. Apart from the Iranian bank, branch license proposals of two South Korean banks, KEB Hana Bank and Kookmin Bank, have also been approved, sources said.

After RBI gives its first internal clearance to a foreign bank branch proposal, it is vetted by a committee comprising senior officials of the ministries of finance, commerce, external affairs and home affairs. Clearance from each ministry is required before RBI can issue a license to a foreign bank.

In the wake of US sanctions, India may explore the possibility of reviving the rupee-rial arrangement it used in the past to import oil from Iran. The presence of an Iranian bank in India will open up a significant financial channel that will ensure the smooth flow of funds between the two countries. 

India imports a large quantity of oil from Iran and has committed an investment of $500 million for the development of Iran’s Chabahar Port.

The rupee-rial arrangement was used to buy oil from Iran before US sanctions were lifted against it three years ago. Under this mechanism, India paid in euros to clear 55% of its dues, while the remaining 45% payment was remitted in rupees into accounts Iranian oil companies had with UCO Bank.

 Trilateral Presence  

Sources said two banks from Iran, Bank Pasargad and Parsian Bank, had applied to set up maiden branches in India, while another Iranian lender, Saman Bank, had sent an application to set up a representative office. 

The government has so far cleared only the Tehran Stock Exchange-listed Bank Pasargad’s proposal for a branch in Mumbai, while the other Iranian bank’s plans are yet to get the green light, sources said.

Apart from the Iranian bank, the Indian government has approved South Korean KEB Hana Bank’s proposal to open its second branch in Gurugram and Kookmin Bank’s request to convert its representative office in Gurugram into a branch. The government, however, has rejected an application from Malaysia’s Maybank to open a branch in India for the second time, sources said.

At least 14 foreign banks applied to RBI last year to open branches across the country. Apart from the Iranian banks, two Chinese banks, four banks from South Korea and two from the Netherlands have applied to set up branches and wholly-owned subsidiaries in India. 

One bank each from the Czech Republic, Sri Lanka and Malaysia have also applied to open branches.

 

US sanctions Bank Pasargad Iran Bank Branch Mumbai Indian government