RBI discontinues Letters of Undertaking, Letters of Comfort for trade credit

The Reserve Bank of India Tuesday discontinued Letters of Undertaking (LoUs) and Letters of Comfort (LoCs) for Trade Credits. 

The RBI, in a circular, said it has been decided 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 circular added that the Letters of Credit will be continued to be issued subject to compliance with the provisions contained in Department of Banking Regulation Master Circular on ‘Guarantees and Co-acceptances’ dated July 1, 2015.

Recently, Punjab National Bank reported the fraudulent issuance of LoUs/ Foreign Letters of Credit for payment of import bills and fraudulent transactions in accounts, amounting to Rs 12,967.86 crore, to the RBI through its fraud monitoring reporting system.

A multi-agency probe, including by CBI and ED has been launched into the PNB fraud.