State-owned PNB has reported fraudulent issuance of Letters of Undertaking (LoUs)/ Foreign Letters of Credit (FLCs) for payments of import bills, amounting to Rs 12,967.86 crore, to the RBI, Minister of State for Finance Shiv Pratap Shukla said in a written reply to the Rajya Sabha.
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".
However, letters of credit and bank guarantees for trade credit will continue upon meeting certain conditions, the central bank said.
The bank has also filed criminal complaints with CBI and the ED, both of which launched nationwide searches on dozens of offices and residences of the alleged fraudsters.The bank has named Modi's brother, his American wife Ami, and uncle Choksi besides some others in the FIR. The fraudulent issuance of LoUs came to light when one of the branch officials asked the firms associated with the diamantaires to furnish at least 100 per cent cash margin for issuing LoUs. The guaranties are given for import of all non-capital goods permissible under the Foreign Trade Policy (except gold), and up to three years for import of capital goods.
In the aftermath of Punjab National Bank (PNB) fraud case, a couple of banks had clamped down on the issue of LoUs. By giving LoU, PNB agrees to repay the principal amount and interest on the clients (Nirav Modi) loan unconditionally.
The RBI issued the directive on LoUs and LoCs on Tuesday, about a month after it was discovered that diamond merchants Nirav Modi and Mehul Choksi had misused LoUs issued by PNB to defraud the bank of over $2 billion.
The buyer's credit usually goes to an overseas nostro account from where the payment to the importer's bank is made. He added that PNB has appraised that it has taken several steps to ensure that such unauthorised activities are not repeated.