India's PNB exposure to alleged fraud swells to well above $2 billion

Share
India's PNB exposure to alleged fraud swells to well above $2 billion

Banks had tightened the rules for issuing LoUs and other guarantees. Indian banks in Hong Kong paid the "suppliers" of these firms based on the LoUs. "An LoU does not have these details and when it is not linked to the banking system it can not be traced like it happened with PNB".

In Nirav Modi's case, LoU is a bank guarantee and was issued for overseas payment. Officials with direct knowledge also said letters of credit have more worldwide acceptability, while letters of undertaking were mostly used between Indian banks.

What happened in this case is that PNB officials allegedly used their access to SWIFT messaging system, which is used for overseas transaction.

RBI said in a notification, "On a review of the extant guidelines, 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".

It, however, said letters of credit and bank guarantees for trade credits for imports into India may continue to be issued subject to compliance with certain provisions - banks should avoid giving unsecured guarantees in large amounts and for medium and long-term periods, and they should avoid undue concentration of such unsecured guarantee commitments to particular groups of customers or trades.

Ever since the scandal broke out, banks, PNB, regulator and the government have been bickering over how to settle the liabilities arising out of the fraud.

Banks also continue to debate who should assume liabilities from the fraud, with several lenders that have either lent to the jewellery groups based on the fraudulent PNB guarantees, or bought the so-called letters of undertaking from the secondary market, wanting PNB to compensate them.

Until the PNB fraud surfaced, buyers' credit was seen as a safe business because of its short-term nature and the risk of default was essentially on another lender. "LoUs were not recognized as a banking instrument according to the global code and now everything will have to be routed through letters of credit", said a private sector banker.

After weeks of deliberations, PNB has come to a kind of a proposal that could lead to part settlement of the liabilities with a caveat. This is essentially a short-term foreign currency loan on which banks charge say 60 to 90 basis points over the London Interbank Offered Rate or Libor - the global benchmark for pricing loans or lending.

The Economic Times daily, citing unnamed sources, reported earlier on Tuesday that PNB would honour claims by peer banks that issued credit to the jewellers, but with a few caveats. The payment can also be made directly to the importer.

Share

Advertisement

Related Posts

Heather Locklear Will Escape Felony Charge In Domestic Violence Arrest
As CrimeOnline previously reported , Locklear's boyfriend , Christopher Heisser, 56, said the actress was acting "crazy, angry, and wild" as she bit and attacked him.

Danny Amendola expected to sign with Dolphins
They also still have Brandin Cooks and Chris Hogan on the outside, as well as Phillip Dorsett and Kenny Britt. There has been no official confirmation from Amendola or the Patriots.

Gigi Hadid & Zayn Malik Split After 2 Years of Dating
He spoke to ES magazine and said, "She's a very intelligent woman". "She's not like, arrogant in any way, she's confident". Adding that she embraced him like a son, Dutch beauty Yolanada said: 'He's a handsome human being from Bradford, England.

Trump spoke with Canada's Trudeau about tariffs, NAFTA talks: White House
He also said the tariffs on Canada would hurt the US nearly as much. Trudeau kicks off the tour today in Jonquiere, Quebec. The prime minister will be in Hamilton on Tuesday.

Bills have 'some interest' in QB Sam Bradford — NFL free agency
Bradford, 30, completed 72 percent of his passes while averaging 259 yards per game the last two seasons with the Vikings . That leaves them looking to the free agent market for a quarterback for now, and they have several options.

Celtics rookie Theis likely out for season with knee injury
Coach Brad Stevens told reporters Monday (Tuesday, Manila time) that the center is weighing his surgical options. Celtics rookie Daniel Theis is likely out for the rest of the season with a torn meniscus in his left knee.

Lloyds Banking Group PLC (LYG) Shares Sold by Eagle Asset Management Inc
In terms of Buy, Sell or Hold recommendations, Lloyds Banking Group Plc (NYSE:LYG) has analysts' mean recommendation of 4. The fund owned 110,211 shares of the financial services provider's stock after selling 35,604 shares during the period.

Monster Hunter World Getting Devil May Cry DLC
With the right materials, players can create a full set of armor that makes them look like Aloy from Horizon Zero Dawn . Monster Hunter: World's next crossover will be with another Capcom franchise: Devil May Cry .

'Buffy the Vampire Slayer' Revival 'Frequently' Discussed
Sarah Michelle Gellar starred as Buffy in the original series, and the story of the Slayer still speaks volumes today. With the recent revival trend, it shouldn't come as surprise the network commented on the beloved show.

Does Amy Schumer Really Need a "Reason" to Keep Her Maiden Name?
Add this as another reason to search your proposed name before changing it - you never know what you'll find. Comedy star Amy Schumer has no plans to change her last name after becoming Mrs.

© 2015 ExpressNewsline. All Rights reserved.