Wednesday, Feb 22, 2012


 
   By Brinda Darasha 
   Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Indian banks are near finalizing a payment mechanism with their Iranian counterparts so that the Iranian rice importers will be able to open credit lines in the Indian currency, in what could be a resolution to the trade payments problem between the two countries in the wake of the Western sanctions on Tehran over its alleged nuclear weapons program, a trade body chief said Wednesday.

"This banking mechanism, where the Iranians will be able to open rupee letters of credit, which is expected soon is going to help sort out delays in payment for the Indian suppliers," Vijay Setia, president of the All India Rice Exporters Association, told Zawya Dow Jones on the sidelines of a grains conference in Dubai.

Iran's local currency has also dropped sharply in recent weeks, creating further uncertainties about trade deals. Setia said with the Iranian rial depreciating by 30%-40% recently, even "an honest Iranian who wants to repay will lose that part of his wealth when he does." With currency fluctuations, 90 days' credit can drag on to even 180 days' wait which would be a problem for the Indian suppliers, he added.

Setia had earlier said that payments from Iran totaling INR10 billion-INR12 billion are stuck because of the currency's slide.

A Dubai-based trader, Shahrokh Khazaei of Mohsen Line General Trading LLC, told Zawya Dow Jones that when the arrangement with Indian banks is set up and running, there would be no need for traders to come through Dubai, once the hub for rice trade between Iran and India. "But today, receiving money from Iran to Dubai is not possible through legal channels as most of the banks here don't encourage opening of letters of credit."

Iran accounts for more than half of India's exports of Basmati rice, a long-grain aromatic variety. "India's total basmati rice exports last year was 2.2 million tons and around 1 million tons were directly or indirectly exported to Iran," according to Setia.

The payment problem with Iran has caused a price drop for the South Asian country's basmati rice as other overseas buyers are driving harder bargains.

-By Brinda Darasha, Dow Jones Newswires; +9714 446-1688;brinda.darasha@dowjones.com

(END) Dow Jones Newswires

22-02-12 1533GMT