Indian exporters unhappy with letter of credit (L/C) arrangements with Iran have called on India's finance ministry to allow them to obtain advance payments from Iranian buyers.

The calls follow a recent arrangement whereby rupee-denominated L/Cs can be used for transactions between India and Iran.

Rupee-denominated L/Cs

The L/Cs in the Indian currency emerged to take the place of US dollar-denominated L/Cs, which became unavailable due to international sanctions on Iran.

But the exporters are not entirely happy with the payment mechanism operated by India's UCO Bank and the Parsian Bank of Iran.

Payment guarantees

This is because Parsian Bank's permission is required to clear payment guarantees for the Indian exporters.

Under US-dollar trades, such guarantees were provided by the exporters' bank in India.

Price fluctuations

As a result, there have been issues with the settlement of L/Cs when the price of goods shipped from India to Iran has fluctuated.

This has prompted the Federation of Indian Export Organisations to lobby the finance ministry with a proposal that Iranian buyers pay an advance of 15-50 per cent of an order value to cover possible price fluctuations.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.