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RBI stops use of LoUs for trade credit for imports

Press Trust of India  |  Mumbai 

In a major decision, RBI today banned banks from issuing Letters of Undertaking (LoUs) -- instruments used allegedly by diamantaire and his uncle to defraud state-owned PNB of Rs nearly 13,000 crore in connivance of officials.

The RBI said the decision to discontinue the practice of LoUs and Letters of Comfort (LoCs) for 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 by AD CategoryI banks with immediate effect," the central said in a notification.

reported fraudulent issuance of LoUs/ Foreign Letters of Credit for payment of import bills and fraudulent transactions in accounts, amounting to Rs 12,967.86 crore, to the RBI through its fraud monitoring reporting system.

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

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

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, March 13 2018. 18:55 IST