Published: Thu, March 15, 2018
Global | By Shelia Dennis

Nirav Modi scam: RBI bars LoUs for trade credits

Nirav Modi scam: RBI bars LoUs for trade credits

India's Punjab National Bank has told police that it has uncovered additional exposure of about 9.42 billion rupees ($145.2 million) in connection with a massive alleged fraud, according to a court filing seen by Reuters.

"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", said Kamineni. Globally though, letters of credit and bank guarantees are the followed norm.

The new disclosure takes PNB's overall exposure in the still unravelling fraud case to well over the $2 billion mark. It claimed that by doing this, Shetty as a banker committed criminal breach of trust... in "blatant violation" of prescribed guidelines of PNB and the Reserve Bank of India.

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Indian investigators have so far arrested almost 20 people, including some senior executives of companies owned by Modi and his uncle Mehul Choksi as well as high-ranking officials of the Punjab National Bank, in the bank fraud probe.

The sector also got a boost on news that Bank of India recovered about 70 billion rupees ($1.08 billion) that had earlier been categorized as bad loans.

The latest regulatory clampdown by the RBI came in the wake of fraud in Punjab National Bank.

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This has, in effect, led to a system of "dual regulation", said Patel, adding that this "fault line is bound to lead to tremors such as the most recent fraud".

These banks are among lenders who have extended credit based on the LoUs issued by PNB.

According to recent reports, Punjab National Bank (PNB) has written a letter to Nirav Modi, the kingpin behind the largest banking scam, to repay the entire amount as soon as possible and also expressed their views of not agreeing to any kind of settlement with him. As a trade financing measure, overseas banks usually lend to importers based on the LoUs issued by the importers' bank. Banks have been increasingly finding it hard to trace persons who dupe them and flee the country. It additionally fills the need of a bank ensure for a bank's client for making installment to seaward providers in outside cash. It was the top percentage gainer on the Nifty PSU Bank index that rose as much as 5.7 percent.

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