Iran's Indian bank looks to life after sanctions windfall

Tue Dec 3, 2013 4:05pm EST
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By Swati Pandey

MUMBAI (Reuters) - An obscure Indian bank has been an unlikely beneficiary of Western sanctions against Iran, handling billions of dollars from frozen oil payments that boosted its interest margins, but is now having to prepare itself for life after the windfall.

UCO Bank UCBK.NS, a Kolkata-based state lender that had been among India's poorer performers, saw revenue and profits surge after it was picked in 2012 to hold rupees for oil payments to Iran, a pile that has grown to more than $3 billion.

Late last month, Iran and six world powers reached an interim deal to curb Tehran's nuclear program in exchange for limited sanctions relief.

"The Iran business was a shot in the arm for us," UCO Chairman Arun Kaul told Reuters. "Still, scope for improvement is very large. We had become a marginal player in the banking industry, we are coming back now."

Sanctions were first imposed on Iran at the beginning of 2012, and tightened in February when the United States asked oil buyers to stop transferring payments to Tehran.

India has cut back sharply on purchases of Iranian oil in order to qualify for a waiver from U.S. sanctions, but has remained a major importer under an arrangement in which Indian buyers pay for Iranian crude in part by depositing rupees at UCO Bank.

The rupees are used to pay Indian exporters to Iran against letters of credit opened by Iranian private banks.

UCO is able to take advantage of the time lag between imports and exports, and the fact that the oil dues greatly exceed the value of shipments of Indian goods to Iran.   Continued...

A staff member works inside a commercial branch of the UCO Bank in Mumbai June 1, 2013. REUTERS/Vivek Prakash