India: RBI eases payment concerns involving large pulses suppliers

The Reserve Bank of India (RBI) has stepped in to address concerns of banks in clearing payments to India’s major pulses suppliers, such as Myanmar, Mozambique and Tanzania, which have been flagged as risky destinations by the Financial Action Task Force (FATF).

In a communication to the Indian Banks’ Association (IBA), the banking regulator has clarified that the FATF move doesn’t prevent domestic financial entities from undertaking legitimate trade and business transactions with these jurisdictions, especially when it involves supplies of essential commodities like pulses, sources close to the development told FE.

Subsequently, the IBA has issued an advisory to its member-banks to sensitise their operating units accordingly, the sources added. The move will ensure that purchases of pulses, traditionally blamed for being a key inflation driver in India, are not hampered due to banks’ non-clearance of payments made by Indian importers, especially when both the government and the RBI are striving to contain price pressure in the economy.

Myanmar, Mozambique and Tanzania account for about a half of India’s pulses imports.

The move came after the FATF had put Myanmar in its “black list” in late October for failure to make adequate progress on curbing illicit financial flows. Mozambique and Tanzania were put in its “grey list” by the Paris-based body, which essentially means they would be under increased monitoring to counter money laundering, terrorist financing, etc. The FTAF crackdown had made Indian banks jittery about undertaking transactions with pulses suppliers in these countries.

To tame price pressure in pulses, India last year signed a memorandum of understanding with Myanmar to import 2,50,000 tonnes of urad and 1,00,000 tonnes of tur every year until FY26 through private trade. It also extended the validity of an MoU with Mozambique by five years until 2026 to import 2,00,000 tonnes of tur annually.

Thanks to increased efforts to ease domestic supplies, inflation in pulses was well within the comfortable limit this fiscal, even though overall food inflation remained mostly elevated. Primary food inflation, at the wholesale level, steadily came down from 13.71% in June to 1.07% in November, while pulses inflation never exceeded 2.6%. At the retail level, pulses inflation stood at 3.15% in November, while food inflation hit 4.67%. Had the price pressure in pulses shot up, food inflation would have accelerated at a faster pace, causing the elevated inflation, both at the wholesale and retail levels, to inch up further.

Tags: RBI, Mozambique, Financial Action Task Force, FATF, trade, India, imports, pulses, Tanzania, Myanmar, Reserve Bank of India