Published: Wed, March 14, 2018
Worldwide | By Gretchen Simon

Don't issue LoUs, LoCs for now, RBI tells Banks in India

Don't issue LoUs, LoCs for now, RBI tells Banks in India

In the case of letters of credit and bank guarantees, domestic banks issue these in favour of the exporter, or seller's, bank.

Nirav Modi and the organizations he controls supposedly utilized the provisos in the managing an account framework by looking for LoUs and raising credit from remote banks to pay their merchantsFor the previous seven years, Nirav Modi and his three firms - Diamond R Us, Solar Exports and Stellar Diamonds - had been purportedly taking LoUs from PNB's Brady Road branch in Mumbai.

The total amount that has been swindled in the country's biggest banking scam ever has now gone up to a humungous Rs 13,578 crore.

Ajay Sahai, Director General of exporters body Fieo said that the RBI decision should have very little impact on trade as bank guarantee and letter of credit continue to be available.

This is separate from the over Rs 13,600 crore fraud relating to the LoUs or Letters of Undertaking that were fraudulently issued to companies owned by diamond and jewellery merchants Nirav Modi and his uncle Mehul Choksi.

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"The supplementary complaint for the additional amount was lodged on March 4", said a CBI official.

Law enforcement agencies had previously attributed 61.38 billion rupees of the alleged fraud amount to Gitanjali, and almost 65 billion rupees to companies controlled by Modi. The new disclosure takes PNB's overall exposure in the still unravelling fraud case to well over the $2 billion mark.

Both are accused on charges of money laundering (under the Prevention of Money Laundering Act) in alleged connivance with some employees of Punjab National Bank (PNB) and have been stated by probe agencies to have left India before criminal charges were pressed against them.

LOUs and LOCs are by far the two main instruments issued by banks to domestic importers to enable them to receive foreign exchange from Banks at cheaper rates. "In the case of PNB, it looks like bank officials issued these instruments without proper credit assessment", said R. Gandhi, a former deputy governor of RBI.

"We are talking. But then we have not come to a conclusion", said a senior banker, who did not want to be named, adding that PNB had not yet provided concrete assurances of repayment.

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