RBI bars banks from issuing LoUs in Nirav scam fallout

RBI bars banks from issuing LoUs in Nirav scam fallout

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.

PNB, the second-biggest Indian state-run lender, uncovered in January the alleged fraud in which certain bank officials were suspected of colluding with Modi and Choksi to issue fraudulent letters of undertaking (LoUs) for their firms to raise loans from overseas branches of mostly Indian banks.

During issuance of LoU, there are four parties involved - issuing bank, receiving bank, importer and beneficiary entity overseas.

The agency had initially pegged the fraud related to Choksi's firms at Rs 4,886 crore when the FIR was registered, and later this amount increased.

Meanwhile, Vipul Ambani, president, finance, at the Nirav Modi-controlled Firestar Group of Companies, on Tuesday moved the Bombay High Court challenging his arrest in the PNB fraud case, and sought bail.

In the aftermath of Punjab National Bank (PNB) fraud case, a couple of banks had clamped down on the issue of LoUs.

In a statement, the bank said ₹942.18 crore was part of the regular limits sanctioned to Mr. Choksi's Gitanjali group under consortium lending, and was the standard credit exposure at the time of detection of the fraud.

About 60 billion rupees ($924.14 million) is due to these banks by end of March, ET said.

Punjab National did not immediately respond to requests for comment.

A man leaves an automated teller machine (ATM) facility of Punjab National Bank (PNB) in New Delhi, India, February 27, 2018. The CBI said that it had come to light during investigation that the accused had committed gross violations of bank guidelines for the benefit of the accused including Choksi.

Another said that, although they were hopeful of arriving at an "amicable solution" on who takes the liability, but added it would likely need intervention by India's central bank and the government.

State bank shares rose on Tuesday after an easing in retail inflation allayed fears of a central bank interest rate increase in the near term, with the sector index gaining 2.3 percent.

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