PNB scam by Jeweller Nirav Modi which caused an irrecoverable loss of 14000 crores to the banks including PNB has made RBI to take some tough regulatory measures on Letter of Credit(LC) or letter of understanding(LOU)
RBI with immediate effect scrapped LC’s as instruments for export credit, However this will not have impact on the LC’s issued for Import to India. RBI has asked banks to follow guidelines laid by them and issue LC’s based on the credit worthiness of the companies and individuals.
In a statement RBI said “It has been decided to discontinue the practice of issuance of LoUs/ LoCs for trade credits for imports into India with immediate effect,” the RBI said in a statement. “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,” it said without saying why it is scrapping it.
The exposure of scam may not be limited to just PNB, the practise of issuance of LC’s for many overseas companies after accepting commission was common among many bankers. While it is true that despite many regulations by RBI, It is impossible to avoid such scam as scammers think different.
PNB share price closed at 2% higher at RS 99.99 in intra day trade and whole of baking index closed with 0.56% gains.