RBI turns up heat on lenders after ~127-bn fraud
The Reserve Bank of India has asked commercial lenders to provide it with details of all letters of undertaking (LoUs) — a form of credit guarantee at the centre of an alleged ~127-billion fraud — issued by them in the past several years, according to four bankers who have seen the directive. The central bank is ratcheting up pressure on lenders, increasing its scrutiny and laying down deadlines for them to fix gaps in their systems. The RBI wrote to all banks a week ago, asking for details of the LoUs they had written, sources said.
The Reserve Bank of India (RBI) has asked commercial lenders to provide details of all Letters of Undertaking (LoUs) — a form of credit guarantee at the centre of an alleged $2 billion fraud — issued by them in the past several years, according to four bankers who have seen the directive.
The RBI is ratcheting up pressure on lenders, increasing its scrutiny and laying down deadlines for them to fix gaps in their systems, in the aftermath of the country’s biggest bank fraud.
Two jewellery groups were accused last month of defrauding the state-run Punjab National Bank (PNB) of more than $2 billion, mostly through fraudulent guarantees based on LoUs issued by rogue bank employees that they used to raise credit overseas. The key accused in the case have denied any wrongdoing.
The RBI wrote to all banks a week ago asking for details of the LoUs they had written, including the amounts outstanding, and whether the banks had pre-approved credit limits or kept enough cash on margin before issuing the guarantees, the sources said.
One of the sources said the regulator had asked for details of LoUs issued as far back 2011, while another said the deadline for banks to respond was earlier this week.
“If there is a problem in one bank, they will be checking the whole system. What’s the outstanding? Is it correctly reflecting in the book or not? That kind of thing,” said a third source, a senior banker.
The RBI did not immediately respond to a request for comment.
In the case of PNB, bank employees who have been accused of pulling off the fraud in connivance with companies controlled by jewellers Nirav Modi and his uncle Mehul Choksi, allegedly issued LoUs on behalf of the jeweller groups without any pre-approved limit or margin.