RBI’s move to ban LoU after Nirav Modi scam

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The decision to discontinue the practice of Letters of Undertakings and Letters of Comfort for trade finance comes into force with immediate effect. It is a right step in the right direction. But the decision came rather late and RBI is taking recourse measures after Nirav Modi made huge buck out of fictitious transactions. The decision-making process of discontinuing of LoU process should be placed in the public domain so that we learn to keep our money under the pillow or spend it extravagantly rather than keeping in Banks. In the wake of an escalating controversy over the Nirav Modi-centred scam at the Punjab National Bank (PNB), the Reserve Bank of India (RBI) has decided to discontinue the practice of providing guarantees by issuing letters of undertaking and letters of comfort for trade credits for imports to India. The action comes into immediate effect. The decision will apply to AD category in Indian banks. The PNB said the fraudulent transactions had resulted in a loss of over Rs 12,600 crore. Does this not appear to be a case of bolting the stable doors after the horses have left? It is just like a blind man trying to have Sun prayers in the morning to save his eyes. Instead of taking action at the right time, everything is taking place after all the happenings.

 

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