Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
RSS

News

RBI’s decision to scrap LoUs will disrupt credit market: CII

Author: IANS/Thursday, March 15, 2018/Categories: Banking & Financial Services

RBI’s decision to scrap LoUs will disrupt credit market: CII

New Delhi, March 14 - Reacting to RBI's decision to scrap the system of issuing Letters of Undertaking (LoUs) and Letters of Comfort (LoC) by banks in the wake of the Rs 12,600 crore fraud on state-run Punjab National Bank (PNB), industry body CII said on March 14 it would have a disruptive impact on the buyers credit market.

The Reserve Bank of India (RBI) on March 13 discontinued the system of issuing LoUs and LoCs by banks for availing trade credits for imports into India following last month's unveiling of the PNB fraud by accused diamantaire Nirav Modi and his uncle Mehul Choksi.

"The decision of RBI to discontinue Letters of Understanding and Letters of Comfort for trade credit would have a disruptive impact on the buyers' credit market, in the immediate term," CII President Shobana Kamineni said in a statement.

"The traders who have been conducting business through these two instruments will now have to necessarily shift their transactions to Letters of Credit and Bank Guarantees. The result would be that cost of credit may go up, especially for the SMEs."

CII feels that RBI could have strengthened and tightened the existing regulations on LoUs and LoCs, or could have announced a phasing out mechanism, rather than completely discontinuing a legitimate and established product.

As per the RBI's latest notification, Letters of Credit and bank guarantees for trade credits can continue to be issued.

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

The PNB scam involved using LoUs issued in favour of the accused by bank employees who misused their access to PNB's SWIFT -- the electronic messaging system employed for overseas funds transfers. 

Print Rate this article:
No rating

Number of views (59)/Comments (0)

Kavita Giridhar Mallya

IANS

Other posts by IANS
Contact author

Leave a comment

Name:
Email:
Comment:
Add comment

Name:
Email:
Subject:
Message:
x

Videos

Ask the Finapolis.

I'm not a robot
 
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
 
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest
 
 

Categories

Disclaimer

The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.