The RBI had issued two circulars in 2016 to banks on strengthening the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system, the misuse of which was unveiled last month in the Rs 12,600 crore fraud on state-run Punjab National Bank (PNB), Parliament was informed on Tuesday.
RBI said in a notification, "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".
Punjab National Bank, incorporated in the year 1969, is a banking company (having a market cap of Rs 23770.76 Crore).
"This regulation will certainly help global banks that were earlier outpriced by Indian banks, to get back to financing genuine trade finance transactions of Indian corporates and support Indian imports, though withholding tax would add to the cost of the importers", said Joiel Akilan, ED & chief representative-India of BBVA, one of Europe's leading banks. This is with response to a Hindustan Times Report mentioning that Nirav Modi in an email had offered jewelry worth Rs. 2,000 crore, current account deposits of Rs 200 crore and immovable properties of Rs 50 crore to settle part of his liabilities.
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 the case of LCs for import of goods, banks should be very vigilant while making payment to the overseas suppliers on the basis of shipping documents". These firms raised short-term credit from overseas branches of other Indian banks based on these LoUs.