RBI had cautioned banks multiple times in 2016 on SWIFT misuse: Government

Darnell Taylor
March 14, 2018

In a notification, the RBI stated: " On a review of the extant guidelines, it has been chose 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 apex bank in its notification said,"It has been made a decision to discontinue the practice of issuance of LoUs/ LoCs for Trade Credits for imports into India by AD Category -I banks with immediate effect".

Experts said the RBI's move to bar LoUs could affect genuine importers.

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. Bankers say the scrapping of LoU/LoC is unlikely to impact trade credit as banks can issue Letters of Credit (LC) and Bank Guarantees for trade credits for imports. The guaranties are given for import of all non-capital goods permissible under the Foreign Trade Policy (except gold), and up to three years for import of capital goods.

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

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In today's plea before the special CBI court, the agency said it has filed another supplementary complaint about additional fraud of Rs 942 crore, taking the total amount of fraud to Rs 7,080 crore.

Apart from diamond trader Nirav Modi and his uncle Mehul Choksi, some PNB employees have been accused of misusing their access to the bank's SWIFT electronic messaging system used for overseas funds transfers.

As a trade financing measure, overseas banks usually lend to importers based on the LoUs issued by the importers' bank.

He further said that PNB has appraised that it has taken several steps to ensure that such unauthorised activities are not repeated.

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