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

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

With the fraudulent letter of undertaking (LoU) scam aggregating ₹12,600 crore at Punjab National Bank shaking the banking system, the Reserve Bank of India on Tuesday asked banks to discontinue issuance of LoU/Letter of Comfort (LoC) for trade credits for imports into India with immediate effect.

After the unearthing of the PNB fraud, an RBI notification last month said: "The risks arising from the potential malicious use of the SWIFT infrastructure has always been a component of their operational risk profile".

Punjab National Bank had reported fraudulent issuances of Letters of Undertakings (LoUs) and Letters of Credit (LoCs) for the payment of import bills and fraudulent transactions in accounts, amounting to Rs 12,967.86 crore to the RBI through its fraud monitoring reporting system.

The issue of LoU for import of pearls in large quantity in the PNB case was rather unusual.




However, letters of credit and bank guarantees for trade credit will continue upon meeting certain conditions, the central bank said. This buyer's credit is provided on the basis of an LoU, which is akin to a guarantee and is issued by the importer's local bank. According to a court filing seen by Reuters, the police also told the court that Mehul Choksi's companies controlled by billionaire Nirav Modi defrauded the lender of Rs 708 crore.

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.

PNB, the second largest state-run bank, had on February 14 informed the exchanges of detecting Dollars 1.77 billion fraud at its Brady House branch in Horniman Circle area of south Mumbai and named the firms led by Modi and his uncle Mehul Choksi's Gitanjali Group and some other diamond and jewelry merchants as suspects.

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


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