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India begins settling Iran oil dues via Germany's EIH bank: sources

[NEW DELHI] Indian refiners have turned to State Bank of India and Germany-based bank Europaeisch-Iranische Handelsbank AG (EIH) to speed payment of billions of Iranian oil dues they still owe to Tehran, after delays in another money route.

Refiners in India, Iran's top oil buyer after China, last month resumed settling their back debt of about US$6.6 billion after the lifting earlier this year of some of the sanctions against Tehran had opened up oil trade and banking channels.

The first payments were handled in May by state-run Union Bank of India via Turkey's Halkbank, which had previously handled payments before tougher European sanctions were put in place in February 2013.

But Union Bank has asked the refiners to raise their credit limits or deposit money in rupees a day ahead of initiating payments, sources familiar with the matter said, and refiners were fearful of delays in working down their oil debt.

Timely payment of the Iranian dues is crucial not only for future crude supplies but also for winning investments in Iran that would strengthen trade ties between New Delhi and Tehran.

From June, refiners have been making payments through State Bank and EIH, said government and company sources with direct knowledge of the matter, which should be quicker since most of the refiners have their main accounts at SBI.

A senior official at the Union Bank of India confirmed that his bank was no longer handling Iran oil payments, declining to provide further details.

No comment was available from Turkey's Halkbank, and EIH did not immediately respond to a request for comment.

Last month, state-run Mangalore Refinery and Petrochemical , Indian Oil Corp and Hindustan Petroleum Corp together cleared US$770 million in euros via Union Bank and Halkbank to National Iranian Oil Co (NIOC).

So far state refiners are taking the lead in settling dues to Iran, aiming to wipe out their debt in three months after weekly limits were set by the Reserve Bank of India.

India has capped weekly dollar purchases by oil refiners at US$500 million as they pay off their Iran debts to avoid pressure on the rupee.

Accordingly, Essar Oil was in June to start clearing about US$260 million a week, followed by MRPL at about US$200 million and IOC at about US$30 million, with the rest coming from HPCL and its joint venture company HPCL-Mittal Energy Ltd (HMEL).

So far this month, MRPL and IOC have cleared about US$330 million through EIH, the refinery and government sources said. Essar Oil, however, Iran's biggest Indian client with about US$3 billion in debt, has settled only US$100 million, they said.

Essar and SBI did not respond to an email seeking comment.