Budget dashes hopes of modernisation, says Army vice-chief

The Wire
March 13, 2018


 Facing flak over its failure to detect the mega scam in the Punjab National Bank (PNB), the Reserve Bank of India (RBI) on Tuesday disallowed issuance of Letter of Undertakings (LoUs) and Letters of Comfort (LoCs) for funding imports, in a move that would force importers to use expensive Letters of Credit (LCs) instead, which could increase their transaction costs by 2-5%.

LoUs were used by the Nirav Modi and Mehul Choksi-promoted companies as a tool to defraud PNB of more than Rs 11,000 crore in a scam that shook the public’s confidence in the country’s public sector banks. PNB officials in a Mumbai corporate branch fraudulently issued LoUs, bypassing the bank’s core banking software. State Bank of India (SBI) and other public sector banks provided financing to these companies against the LoUs issued by PNB. This fraud was going on since 2011.

Scamsters Nirav Modi, Mehul Choksi and their family members left India before investigative agencies could act against the curlprits.

“Banks will earn more money by issuing LCs in place of LoUs and LoCs and transaction costs for imports could go up by 2-5%,” Arun Goyal, a well-known trade expert, told The Wire.

Finance minister Arun Jaitley blamed the PNB scam on poor supervision by regulators and auditors.

“Regulators have a very important function. Regulators ultimately decide the rules of the game and regulators have to have a third-eye which is to be perpetually be open,” the finance minister said while commenting on the PNB scam.

Jaitley added, “But unfortunately in the Indian system, we politicians are accountable, the regulators are not.”

The RBI has finally cracked down on LoUs and LoCs. A RBI circular 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.”

The central bank said that the LCs will be continued to be issued “subject to compliance with the provisions contained in Department of Banking Regulation Master Circular on ‘Guarantees and Co-acceptances’ dated July 1, 2015.”

Buyers credit is arranged against LOUs or LOCs issued by importer’s bank. LoU in simple terms is bank guarantee issued by Indian bank against which overseas bank provide finance on Libor rates. Libor linked finance used by importers are buyers credit, suppliers credit and external commercial borrowings, among others.

LoC in the banking parlance is referred to a document which is provided by a person, typically an affiliate such parent company to assure the financial soundness of the borrower to repay its debt.

A LoC is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.

Due to the nature of international dealings, including factors such as distance, differing laws in each country, and difficulty in knowing each party personally, the use of LCs has become a very important aspect of international trade, said experts.


Comments

Post a Comment

Popular posts from this blog

India Joins Russia in Voting Against West-Backed Move to Expand Powers of OPCW

The Wire: June 28, 2018 New Delhi: India voted against a UK-backed move that will allow the global chemical weapons watchdog to apportion blame for illegal attacks, criticising the decision to grant “unchecked powers” to the head of the group which could be used for “partisan” purposes. On Wednesday, more than two-thirds of the member states of the Organisation for the Prohibition of Chemical Weapons (OPCW) voted to authorise the international body to identify the perpetrators and sponsors of a chemical weapons attack. It also specifically called on the OPCW’s technical secretariat to begin work on identifying the perpetrators behind the use of chemical weapons in Syria. The draft decision, sponsored by 30 countries, was adopted at the fourth special session of the conference of the states parties to the Chemical Weapons Convention at the Hague, with 82 in favour and 24 negative votes. While Europe, the United States and their allies voted ‘yes’, there was strong oppo
Read more

As financial insecurity rises in urban India, so does investment in insurance

Image
Scroll.in March 13, 2020 Urban Indians are becoming less confident about their financial security. Up to 58% of them fret over financial independence post retirement, which is a 4% increase from last year. An equal share of urban Indians worry about meeting their daily medical expenses and sustaining their current lifestyle once they stop working. The findings are part of a survey published by Delhi-based Max Life Insurance in association with London-based consultancy Kantar. The firms surveyed 7,014 respondents in 25 cities, including six metros, nine tier-1 cities, and 10 tier-2 cities, between December 2019 and January 2020. Source: Max Life Insurance via Quartz The trends Source: Max Life Insurance via Quartz Source: Max Life Insurance via Quartz Source: Max Life Insurance via Quartz A significant share of urban Indians also say their families will have no financial support in the event of the breadwinner’s death. In such a scenario, around 57% believe the family sav
Read more

ED tracks Swiss Bank A/Cs of Agusta scamster

The Poineer February 10,2019 Rakesh K Singh The Enforcement Directorate (ED) has tracked a dozen Swiss bank accounts in the name of Rajiv Saxena, who is key accused in the Rs 3,600 crore AgustaWestland VVIP chopper scam. The ED has also found out accounts held by  his family members and associates where the kickbacks in the now scrapped deal were allegedly parked. Two bank accounts are in the name of Rajiv Saxena’s  associates Pankaj Jain and Sumita Jain who are also the authorised signatories. The  third is in the name of another associate Ajit Singh Bubber, but Rajiv and his family members are authorised signatories. The remaining nine accounts are largely owned and operated by Rajiv, his family members and associates. Rajiv Saxena was deported by the UAE authorities on January 30 and the ED formally arrested him the next day and a court later granted his remand to the agency. He is currently undergoing custodial interrogation by the ED. The agency had in 2017 arrested his
Read more