The agreement, which was signed on Thursday, will allow Indian refineries to make rupee payments in UCO account of the National Iranian OIL CO (NIOC,) the Times of India reported today.
Sources have told Times of India that half of these funds would be earmarked for settling payments.
India along with seven other states have received temporary exemptions after the United States re-imposed its secondary sanctions on Iranian oil sales and access to the US dollar.
Under US sanctions, India can export foodgrains, medicines and medical devices to Iran, according to the report.
Earlier this month, it was announced that Iran and South Korea agreed on a similiar mechaism to continue bilateral trade in the face of newly-reimposed US sanctions. Furthermore, the European countries have also promised a Special Purpose Vehicle (SPV) to condinue doing business with Iran, on which the Europeans are still working.