You are here: Home » Finance » News » Banks
Business Standard

PNB fraud fallout: RBI stops use of LoUs for trade credit for imports

The RBI said the decision to discontinue the practice of LoUs and Letters of Comfort (LoCs) for trade finance comes into force with immediate effect

Press Trust of India  |  Mumbai 

RBI, Reserve Bank of India
A woman walks past the Reserve Bank of India (RBI) head office in Mumbai | Photo: Reuters

In a major decision, today banned from issuing (LoUs) -- instruments used allegedly by diamantaire and his uncle Mehul Choksi to defraud state-owned of Rs nearly 130 billion in connivance of bank officials.

The RBI said the decision to discontinue the practice of LoUs and Letters of Comfort (LoCs) for trade comes into force with immediate effect.

"On a review of the extant guidelines, it has been decided to discontinue the practice of issuance of LoUs/ LoCs for Trade Credits for imports into India by AD Category–I with immediate effect," the central bank said in a notification.

Punjab National Bank reported fraudulent issuance of LoUs/ Foreign Letters of Credit for payment of import bills and fraudulent transactions in accounts, amounting to Rs 129.67 billion, to the through its fraud monitoring reporting system.

A multi-agency probe, including by CBI and ED has been launched into the fraud.

The notification further said that Letters of Credit and Bank Guarantees for trade credits for imports into India may continue to be issued subject to compliance with the provisions.

First Published: Tue, March 13 2018. 18:57 IST
RECOMMENDED FOR YOU