RBI Clamps Down On Credit Guarantees As PNB Fraud Swells

PNB fraud Nirav Modi allegedly managed to get 1,212 LoUs- which the RBI has discontinued now- in 74 months

PNB fraud Nirav Modi allegedly managed to get 1,212 LoUs- which the RBI has discontinued now- in 74 months

The fair market value of the penthouse, as per a government approved valuer, is Rs 81.16 crore.

The move comes weeks after fugitive jeweller Nirav Modi and his uncle Mehul Choksi allegedly committed India's biggest bank fraud.

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.

An unidentified lawyer for Choksi told Reuters that he was unaware of the new allegations, and refused to comment.

The RBI issued a circular asking the banks on Tuesday to stop issuing LOUs and Letter of Comforts which acts as an assurance for payments extended by a third party, for imports into India with immediate effect. It will also put companies that have received credit based on LoUs in a spot, as they have to now repay their borrowings since there will no rollover of existing LoUs.

These bank ensures purportedly helped Mr Modi raise here and now credits from outside branches of Indian banks to pay to providers of crude material, for example, unpleasant stones.

The RBI notification further said that Letters of Credit and Bank Guarantees for trade credits for imports into India may continue to be issued subject to compliance with the provisions. Recent reports also highlight that, billionaire Modi has refused to join the CBI investigation related to the case, citing that he has a business overseas. "A LoU does not have these details and when it is not linked to the banking system it can not be traced, like it happened with PNB".

Ajay Sahai, Director General of exporters' body Fieo said that the RBI decision should have very little impact on trade as bank guarantee and letter of credit continue to be available.

LoUs and LoCs are used widely in several industries including gems and jewellery, oil and gas, electronic goods, solar panels and metals. The CBI has registered two separate FIRs in the fraud and most of the accused are common in both cases.

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