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RBI stops issuance of LOUs/LOCs for trade credit for imports

New Delhi: In the wake of PNB - Diamond merchant Nirav Modi fraud case, the Reserve Bank of India (RBI) has announced the discontinuation of the issuance of Letters of Undertaking (LOUs) and Letters of Comfort (LOC) for trade credit for imports with immediate effect.

The RBI in its notification said,"It has been decided to discontinue the practice of issuance of LoUs/ LoCs for Trade Credits for imports into India by AD Category -I banks with immediate effect."

"Letters of Credit and Bank Guarantees for Trade Credits for imports into India may continue to be issued, subject to compliance with the provisions contained in Department of Banking Regulation Master Circular on "Guarantees and Co-acceptances", as amended from time to time," It added.

The RBI added that the aforesaid Master Direction will be updated to reflect the changes.

However, it mentioned that the changes will be applicable from the date of issuance of the circular.

In the aftermath of Punjab National Bank (PNB) fraud case, a couple of banks had clamped down on the issue of LoUs.

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