RBI bars banks from issuing LoUs after Nirav Modi, Choksi fraud at PNB

Letters of credit (LCs) and guarantees would continue to be issued like before if they meet certain criteria

The Reserve Bank of India (RBI) on Tuesday discontinued issuance of letters of undertaking (LoUs) and letters of comfort (LoCs) for importers with immediate effect, in an attempt to prevent fraud such as the one allegedly carried out by jewellers Nirav Modi and Mehul Choksi.
 
Letters of credit (LCs) and guarantees will continue to be issued like before if they meet certain criteria.
 
Normal trade credit is unlikely to be hampered. However, costs would increase for importers and a profitable business avenue for foreign branches of banks would close down, said senior bankers. Importers were raising these LoUs