Published: Thu, March 15, 2018
Global News | By Stacy Ballard

Banks barred from issuing LoUs

Banks barred from issuing LoUs

Previously, PNB had pegged its fraud exposure to Gitanjali Group, controlled by Mehul Choksi, at Rs 6,138.28 crore, after addition of Rs 1,251.56 crore on February 22.

So far, there have not been any comments from either the Gitanjali group or Mehul Choksi.

A day after Reserve Bank of India (RBI) barred lenedrs from issuing Letters of Understanding (LoUs), bank stocks took a hit in the equity market, causing the benchmark indices to lose nearly half a per cent in morning trade.

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India's central bank for the first time scrapped the system of issuance of guarantees like Letters of Undertaking (LOU) and Letters of Comfort (LOC) in the wake of the biggest-ever bank fraud of 1.8 billion USA dollars. However, letters of credit and bank guarantees will continue upon meeting certain conditions, the central bank said in a press statement.

LoUs are bank guarantees through which a bank allows customers to raise money from another Indian bank's foreign branch as short-term credit.

Ever since the fraud came to light, PNB, RBI and the Government have been wrangling with the issue of how to settle the liabilities arising out of this fraud.

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The Economic Times daily, citing unnamed sources, reported earlier on Tuesday that PNB would honour claims by peer banks that issued credit to the jewellers, but with a few caveats. The money thus raised is used to make payment to offshore suppliers in for-eign currency. Such transactions went on for six years without detection.

Both Modi and Choksi are overseas and have refused to return to face trial.

The CBI too is probing the case.

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Mumbai: The Punjab National Bank (PNB) has filed a fresh complaint to the CBI alleging it has uncovered additional exposure of about Rs 942.18 crore defraud by Gitanjali Group of companies in connection with a multi-crore fraud.

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