The Reserve Financial institution of India has discontinued Letters of Enterprise (LoUs) or ensures for abroad credit immediately after the Punjab Countrywide Financial institution (PNB) fraud. The LoU credit history is preferably meant for small-phrase only.
In the Nirav Modi-Mehil Choksi circumstance, the time period of mortgage was allegedly extended much over and above what is prescribed as for every the rule e-book.
There is a broadly accepted provision of lender ensures known as a letter of enterprise (LoU) beneath which a lender can make it possible for its shopper to elevate dollars from another Indian bank’s foreign department in the kind of a brief-term credit score.
The LoU serves the purpose of a financial institution assurance for a bank’s shopper for creating payment to its offshore suppliers in the overseas forex.
Nirav Modi, and the corporations he controls, allegedly leveraged the loopholes in the banking program by searching for LoU and boosting credit score from international banks to fork out its retailers.
For past 7 years, Nirav Modi and his 3 firms – Diamond R Us, Solar Exports and Stellar Diamonds – ended up allegedly procuring the LoUs from the PNB’s Brady Street department in Mumbai.
These lender guarantees allegedly helped Mr Modi increase the brief-phrase loans from overseas branches of Indian banking institutions to shell out to its suppliers of raw substance (tough stones).
Even PNB and other lenders are slugging out in excess of the bank loan time period, which really should not have been prolonged, states PNB, more time than 90 days.PNB has instructed police that it has also uncovered additional exposure of about Rs 9.42 billion in link with a significant fraud, in accordance to a court filing.
PNB previous month explained it had been defrauded of about Rs 12,600 crore by two jewellery groups who lifted credit score from overseas financial institutions based mostly on fraudulent ensures issued in collusion with rogue PNB staff.