PNB fraud fallout: RBI stops use of LoUs for trade credit for imports

In a major decision, RBI today banned banks from issuing Letters of Undertaking (LoUs) -- instruments used allegedly by diamantaire Nirav Modi and his uncle Mehul Choksi to defraud state-owned PNB of Rs nearly 130 billion 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