PNB-Nirav Modi scam, the story so far
RBI stops use of LoUs for trade credit for imports
The decision to discontinue the practice of Letters of Undertakings and Letters of Comfort for trade finance comes into force with immediate effect, says the RBI
In a major decision, the Reserve Bank of India (RBI) on Tuesday banned banks from issuing Letters of Undertaking (LoUs) — instruments used allegedly by diamantaire Nirav Modi and his uncle Mehul Choksi to defraud State-owned Punjab National Bank (PNB) of nearly ₹13,000 crore in connivance of bank officials.
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.
“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 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 ₹12,967.86 crore, to the RBI through its fraud monitoring reporting system.
A multi-agency probe, including by the CBI and the Enforcement Directorate, 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.
