RBI bans use of LoUs for trade credit for imports

New Delhi, March 14: Following diamantaire Nirav Modi defrauding PNB Bank of Rs 12,600 crore using LOUs (Letters Of Undertaking), the Reserve Bank of India (RBI) has decided to discontinue LoUs and Letters of Credit.

"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 banks with immediate effect," the RBI circular stated.

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 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 Bank Guarantees for trade credits for imports into India may continue to be issued subject to compliance with the provisions.