Scrapping of guarantees by RBI to hit foreign branches of Indian banks

The Reserve Bank of India’s (RBI) directive to stop issuing letters of comfort (LoCs) and letters of undertaking (LoUs) for importers will hit foreign branches of Indian banks, especially those from the public sector space. It is also likely to hasten rationalisation of such branches.
 
Many medium size and small enterprises (SMEs) will also face the heat, say banking officials.
 
Trade finance is essentially short-term credit, which includes LoUs, LoCs, letters of credit (LCs), guarantees and the like. These are a significant part of the foreign business at state-owned banks. Also, the capital requirement of public sector banks