Par panel calls for restoration of financial credit instruments with proper safeguards

A parliamentary panel has called for restoration of financial credit instruments of Letters of Undertaking (LoU) and Letters of Comfort (LoC) but with proper safeguards.

Voicing concern over discontinuation of LoU/ LoC that is impinging trade and commerce in labour intensive and MSME Sectors, the Panel expressed concern on the absence of any prescribed norms for resolutions of NPAs due to quashing of RBI Circular dated February 12, 2018 by Supreme Court: Recommends a realistic framework for resolution of stressed assets.

After Rs 14,000 crore fraud by diamantaire Nirav Modi, the RBI last year had decided to discontinue the practice of issuance of LoUs/ LoCs for trade credits for imports into India.

The Department Related Parliamentary Standing Committee on Commerce, under the Chairmanship of V Vijayasai Reddy, MP, Rajya Sabha Wednesday presented the Report on Action Taken by Government on the Recommendations/ Observations of the Committee contained in its One Hundred and Forty Sixth Report on Impact of Banking Misappropriation on Trade and Industry' to the Rajya Sabha.

"It is strongly felt by the Parliamentary Panel that the financial credit sourced through borrowing instruments of LoU and LoC stimulated trade in the country because of their easy availability and cost effectiveness.

"The Committee, therefore, notes that a ban on these instruments would impinge the trade in labour intensive and MSME Sectors which are mainly dependent upon cheap credit. Hence, the Committee recommends that the Government should make prudential analysis for the restoration of LoU and LoC at the earliest with proper safeguards," a statement on the report's observations said.