Nirav Modi fraud: No PSBs issued fake LoUs except PNB, says SBI official

A day after the Reserve Bank banned Letters of Credit, State Bank of India today said that no other public sector bank issued unauthorised credit letters except PNB. The PNB is at the centre of India's biggest banking scam where two of its officials allegedly issued as many as 1,213 LoUs fraudulently for the group of companies belonging to billionaire jewellers Nirav Modi and Mehul Choksi.
 
SBI Deputy Managing Director M S Sastry in a press briefing said: "Each bank has already scanned their LoU/LoC related transactions and have confirmed that all of them are properly assessed, genuine and accounted for except those reported." He also informed that further controls have now been put in place that included additional layer of approvals for all outward swift message, integration of SWIFT with CBS latest by April 30, 2018.
 
CBS refers to system where all branches are inter-connected and all the transactions are updated real-time. However, the PNB officials - who fraudulently issued the LoUs - had bypassed the CBS and used a messaging system called SWIFT which was not integrated with CBS.
 
The RBI on Tuesday barred all banks from issuing guarantees in the form of LoUs. The central bank in a press statement said: "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 commercial banks with immediate effect." However, letters of credit and bank guarantees for trade credits for imports into India may continue to be issued subject to compliance with (certain) provisions, it added.
 
An LoU is a service whereby the bank guarantees a customer's payment obligation of a specified amount to an overseas bank.