Mumbai: The Reserve Bank of India (RBI) on Tuesday has banned banks from issuing the Undertaking Letters (LoUs) which is alleged used by Nirav Modi and his uncle Mehul Choksi to fraud government-owned PNB together with bank officials of Rs. 13,000 crores.
The Reserve Bank of India said that the decision to discontinue the practice of LoUs and Letters of Comfort (LoCs) for business finance is implemented with immediate effect.
In a notification, the central bank said, “On review of the existing guidelines, it has been decided to stops the practice of issuing LoUs / LOCs for trade credit for import in India with immediate effect. The Punjab National Bank (PNB) issued fraudulent LoUs / Foreign Letters for payment of import bills and fraud transactions in the accounts of 12,967.86 crore to Reserve Bank of India through fraud monitoring reporting system.
A multi-agency investigation has been launched in PNB fraud including the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED). The RBI notification further said that for credit of business in India, for credit and bank guarantees can be issued subject to compliance with the provisions.
