New Delhi, Mar 13: The Reserve Bank of India (RBI) has decided to discontinue Letters of Understanding (LoUs) and Letters of Comfort, following the multi-crore Punjab National Bank (PNB) fraud involving celebrated jeweller Nirav Modi and his uncle Mehul Choksi. The apex bank in a circular, said, “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.” Also Read - Bank Resolution Framework Changes Credit Positive: Moody's
“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 Master Circular on “Guarantees and Co-acceptances”, as amended from time to time,” it further added. Also Read - RBI to Conduct Special 'Open Market Operations' to Pump up Liquidity
The RBI added that the aforesaid Master Direction will be updated to reflect the changes. However, it mentioned that the changes will be applicable from the date of issuance of the circular. Also Read - Centre Discussing With RBI on One-time Loan Restructuring For Stressed Companies
Earlier also a couple of banks had clamped down on the issue of LoUs in the aftermath of PNB fraud case.