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Main » .NewDelhi DEL61 BIZ-RSQ-PNB PNB takes steps to secure SWIFT operations

.NewDelhi DEL61 BIZ-RSQ-PNB PNB takes steps to secure SWIFT operations

14 March 2018

Though the latest decision will cause disruption in trade finance, experts said that the move would help bring such trade transactions under a more legal and structured route.

The CBI had earlier claimed that in the investigation initiated after receiving a complaint from the PNB in January, it was found that fraudulent Letters of Understanding (LoUs) were issued by bank officials for the benefit of Modi's firms to the tune of Rs 6,500 crore so far.

However, letters of credit and bank guarantees will continue upon meeting certain conditions, the central bank said in a press statement. LoUs and LoCs are two of the instruments issued by Indian banks to domestic importers to get foreign exchange from banks overseas at a cheaper rate.

The CBI today told a Mumbai court that it has added the charge of "criminal breach of trust" to the case related to diamond trader Mehul Choksi's firms in the Punjab National Bank (PNB) fraud case.

The RBI issued the directive on LoUs and LoCs on Tuesday, about a month after it was discovered that diamond merchants Nirav Modi and Mehul Choksi had misused LoUs issued by PNB to defraud the bank of over $2 billion.

Companies belonging to Modi and Choksi allegedly colluded with employees of Punjab National Bank's Brady House branch in Mumbai to obtain fraudulent LoUs, without providing any margin money as security.

In a statement, the bank said ₹942.18 crore was part of the regular limits sanctioned to Mr. Choksi's Gitanjali group under consortium lending, and was the standard credit exposure at the time of detection of the fraud.

A man leaves an automated teller machine (ATM) facility of Punjab National Bank (PNB) in New Delhi, India, February 27, 2018.

In Nirav Modi's case, LoU is a bank guarantee and was issued for overseas payment.

"We are talking. But then we have not come to a conclusion", said a senior banker, who did not want to be named, adding that PNB had not yet provided concrete assurances of repayment.

Banks would need to make provisions for any potential losses from fraud when they report results for the March quarter, said the banker.

.NewDelhi DEL61 BIZ-RSQ-PNB PNB takes steps to secure SWIFT operations