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PNB scam fallout: RBI discontinues use of LoUs and LoCs as trade credits

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In a remedial action to the Nirav-Modi led Punjab National Bank fraud, now worth Rs 13,640 crore, the Reserve Bank of India (RBI) has discontinued use of LoUs or Letters of Undertaking and Letters of Comfort as trade credits.

“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,” RBI said in a notification on Tuesday.

It added, “Letters of Credit and Bank Guarantees for Trade Credits for imports into India may continue to be issued subject to compliance with the provisions contained in Department of Banking Regulation circular on “Guarantees and Co-acceptances”, as amended from time to time.”