Mumbai: The country’s largest lender State Bank of India (SBI) has alerted all its offices on the pitfalls of dealing with companies carrying out trade with Russia and Iran which are battling US sanctions.Large corporate branches handling oil import payments to Iran have been told to inform Indian refiners that the bank will not be able to entertain such transactions from November 4 if the existing sanctioned regime continues. All branches have been directed to refrain from taking new exposure in any form, such as letter of credit and bank guarantee, for any transaction related to Iran with immediate effect, according to a SBI internal communique, dated May 25.The bank’s branches have to invariably obtain prior clearance from the compliance division before handling transactions related to Russia (and a few other countries) in a special format and conduct higher level of due diligence before taking any credit exposure.The US this month withdrew from the Iran nuclear deal and reimposed sanctions that were suspended under the 2015 accord.However, addressing a news conference this week Indian external affairs minister Sushma Swaraj said that the country would follow only sanctions by the United Nations, and not unilateral sanctions by a country.64393646

According to a news agency report, Iran remained the third-biggest oil exporter to India during April 2017-February 2018, while Iraq replaced Saudi Arabia as top supplier. The April 2018 report said that drawn by incentives offered by Tehran, Indian state refiners plan to double oil imports from Iran in 2018-19.Though low-valued trade transactions, which are typically below the radar and difficult to track, may be overlooked by US authorities, Indian banks, particularly lenders with operations in the US, can come under the glare for settling trade payments with sanctioned entities in dollar. The SBI circular is silent on whether the US currency can be used to settle the trades with Russia and Iran.“The US government frowns upon dollar payments for trade with sanctioned entities. Doing a third-country trade can be complicated while using another international currency like euro as most European financial institutions have operations in the US. Banks, like some of the Turkish lenders, have faced action in the past… Settling trade in rupee/rouble with Russia would create the problem of accumulation of rupees in the designated account with Russia exporting high-valued items like defence items and running a trade surplus with India,” said a senior official of another bank.According to another banker, the Reserve Bank of India has asked banks about their preparedness and comfort in handling trades in an environment of economic sanctions on Russia. “The regulator would not push banks to transactions which could hurt them later. The government also is in touch with banks, trying to figure a way out. As of now, many private sector banks are informing their customers about the difficulties in handling payments for trade with Russia,” said another banker.SBI, in the internal circular, told its offices that all SWIFT transmissions (like letters of credit, bank guarantees etc) should contain full disclosure of all the parties to the transactions, including the purpose of such transaction. SWIFT is the global financial messaging service banks use to move millions of dollars and documents across borders every day. “This is critical to ensure that all counterparties get scrubbed in our OFAC filters to guard against any possible violations,” said the circular. OFAC, or the Office of Foreign Assets Control (OFAC) of the US Treasury Department, administers and enforces economic and trade sanctions against targeted foreign countries and regimes. SBI branches have been told not to enter into any correspondence with anyone other than the compliance cell for clarification on transactions related to sanctioned countries and entities.