India’s media have reported that the country has given the go-ahead to a plan to revive a banking mechanism that would allow payments to Iran for oil purchases as well as other trade activities.

The Indian Express reported that Iran’s Bank Pasargad had received an authorization to open a branch in Mumbai.

The authorization was accordingly conveyed to the Reserve Bank of India (RBI) by India’s Finance Ministry.

The move - The Indian Express added in its report – would be crucial specifically in light of the returning US sanctions that would potentially choke channels to transfer cash to Iran among many other restrictions.

Iran is the third-biggest oil supplier to India, which, in turn, is the Islamic Republic’s top oil client after China.

The daily further added that the channel that would be created through Bank Pasargad would allow arrangements to settle trade in mutual currencies of both countries.

On the same front, it wrote that the Federation of Indian Export Organizations had earlier approached the RBI suggesting that they should allow the entry of Iranian banks into India to facilitate bilateral trade.

In the wake of US sanctions, India might explore the possibility of reviving a mechanism to settle oil payments involving Iran’s Rial and India’s Rupee that was in place between the two countries in the past.

The Rupee-Rial arrangement was used to buy oil from Iran before US sanctions were lifted against it three years ago. Under this mechanism, India paid in Euros to clear 55 per cent of its dues, while the remaining 45 percent payment was remitted in Rupees into accounts Iranian oil companies had with UCO Bank.

The presence of an Iranian bank in India would open up a significant financial channel that would ensure the smooth flow of funds between the two countries, added the daily.

India imports a large quantity of oil from Iran and has committed an investment of $500 million for the development of the crucial Chabahar port.

Elsewhere in its report, The Indian Express quoted sources as saying that two banks from Iran, Bank Pasargad and Parsian Bank, had applied to set up maiden branches in India, while another Iranian lender, Saman Bank, had sent an application to set up a representative office.

The government has so far cleared only the Tehran Stock Exchange-listed Bank Pasargad’s proposal for a branch in Mumbai, while the other Iranian banks’ plans are yet to get the green light, the unidentified sources said.

In May, US President Donald Trump announced that he would pull America out of a 2015 nuclear agreement with Iran and re-impose the sanctions that the deal had envisaged to be lifted.

He has already emphasized that the sanctions which would be imposed on Iran would be “at the highest level”.

The sanctions would include a universal ban on Iran over buying or acquiring US dollars as well as restrictions over purchases of crude oil from the country and investing in its oil sector projects.

On a related front, a senior US State Department official was quoted as saying recently that the countries purchasing oil from Iran should prepare themselves to completely stop the Iranian crude imports by November as Washington reimposes sanctions against Tehran.