In an apparent measure to counter the money-fraud involving nationalized and private Banks in the country, the Reserve Bank of India (which controls the functioning of all banks) has issued directions to all Banks not to issue Letters of Undertaking (LoUs) and Letters of Comfort (LoCs) to clients.

LOUs and LOCs are by far the two main instruments issued by banks to domestic importers to enable them to receive foreign exchange from Banks at cheaper rates. The issuance of these two main instruments of trade finance has now been banned by the RBI.

Nirav Modi, the absconding industrialist, reportedly committed money fraud to the tune of Rs.12,646 crores reportedly with the help of a few staff members of the public sector Punjab National Bank.  CBI and Enforcement Directorate officials are looking into the case. Yet another firm – Delhi-based diamond merchants Dwarka Dass International – is accused of committing money fraud to the tune of Rs.385 crores.

Two more Delhi-based industrialists have duped Bank of Baroda of Rs.6000 crores, it has been reported. Banks have been increasingly finding it difficult to trace persons who dupe them and flee the country. In order to ensure that the trend is arrested, the RBI has barred Indian banks from issuing LOUs and LOCs to its customers.