According to sources, IDBI Bank has been identified to route the payments. UCO Bank had in the previous round of sanctions handled rupee payments, Moneycontrol reported on Monday.
US President Donald Trump last May withdrew from the 2015 nuclear accord with Iran, reimposing economic sanctions against the country. Some sanctions took effect from August 6, 2018 while those affecting the oil and banking sectors started from November 4, 2018.
Iran is India's third-largest oil supplier after Iraq and Saudi Arabia. It was India's second-biggest supplier of crude oil after Saudi Arabia till 2010-11 but sanctions by the West over its nuclear program relegated it to the seventh spot in the subsequent years. In 2013-14 and 2014-15, India bought 11 million tons and 10.95 million tons of crude, respectively from Iran.
India used to pay its third-largest oil supplier in euros using European banking channels. But this channel is also blocked from November last year.
Bilateral trade between India and Iran increased to $13.8 billion in 2017-18 from $12.9 billion in the previous fiscal. However, India's exports were only worth $2.5 billion to that country.
The Federation of Indian Export Organizations (FIEO) said that more banks should get permission for trade with Iran.
"This will generate healthy competition between UCO and IDBI encouraging them to be more customers-friendly and thereby benefitting exim community," FIEO President Ganesh Kumar Gupta said.