PNB fraud: Charge of criminal breach of trust added to FIR

PNB fraud case RBI discontinues system of issuing Letters of Undertaking system

PNB fraud case RBI discontinues system of issuing Letters of Undertaking system

"On a review of the extant guidelines, it has been chose to discontinue the practice of issuance of LoUs/ LoCs for Trade Credits for imports into India by AD Category-I banks with immediate effect", the central bank said in a notification.

Fraud-hit Punjab National Bank (PNB) has taken a series of measures to check misuse of SWIFT message platform, allegedly used by Nirav Modi and his associates to defraud the bank of Rs 1,2967.86 crore, the Finance Ministry said today.

According to recent reports, Punjab National Bank (PNB) has written a letter to Nirav Modi, the kingpin behind the largest banking scam, to repay the entire amount as soon as possible and also expressed their views of not agreeing to any kind of settlement with him.

LoUs and LoCs are two of the instruments issued by Indian banks to domestic importers to get foreign exchange from banks overseas at a cheaper rate.

However, letters of credit and bank guarantees will continue upon meeting certain conditions, the central bank said in a press statement.

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Two officials at PNB's Brady House branch in Mumbai issued LoUs without authorisation to firms linked to diamantaires Nirav Modi and his uncle Mehul Choksi.

During issuance of LoU, there are four parties involved - issuing bank, receiving bank, importer and beneficiary entity overseas.

"This regulation will certainly help global banks that were earlier outpriced by Indian banks, to get back to financing genuine trade finance transactions of Indian corporates and support Indian imports, though withholding tax would add to the cost of the importers", said Joiel Akilan, ED & chief representative-India of BBVA, one of Europe's leading banks. They did not have any pre-approved credit limit either.

The central bank has also mandated commercial banks to put in place adequate audit and compliance mechanisms with bank board-level reporting through the audit committee of the board, the minister added.

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