PNB scam fallout: RBI bars banks from issuing LoUs, LoCs

The Reserve Bank of India headquarters in Fort Mumbai

"On an audit of the surviving rules, it has been chosen to cease the act of issuance of LoUs/LoCs for Trade Credits for imports into India by AD Category I keeps money with quick impact", the national bank said in a notice.

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 commercial banks with immediate effect, RBI said. Globally though, letters of credit and bank guarantees are the followed norm. In a court filing on Tuesday, police said the Gitanjali group of companies controlled by jeweller Mehul Choksi allegedly defrauded PNB of Rs. 7080 crore ($1.09 billion).

The committee had called for a wider probe in the PNB scam.

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.

The bank is at the center of a fraud by billionaire jeweler Nirav Modi and Mehul Choksi.

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Punjab National Bank fell 3.5%, Bank of India retreated 3.2% and Canara Bank dropped 3.1%.

The ED had earlier issued summonses to Modi and Choksi - the key accused in the scam - asking them to appear before it in Mumbai.

Another said that, although they were hopeful of arriving at an "amicable solution" on who takes the liability, but added it would likely need intervention by India's central bank and the government. In order to ensure that the trend is arrested, the RBI has barred Indian banks from issuing LOUs and LOCs to its customers. It additionally fills the need of a bank ensure for a bank's client for making installment to seaward providers in outside cash.

Public sector banks shares hit the most, with the PSU Bank index itself falling more than 2 percent on Wednesday after the increase in PNB fraud amount for the second time.

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