March 13, 2018 / 1:35 PM / 3 months ago

RBI bars issuance of letters of undertaking for trade credit

MUMBAI (Reuters) - The Reserve Bank of India (RBI) ordered commercial banks on Tuesday to stop issuing with immediate effect guarantees in the form of letters of undertaking - which are at the heart of the country’s biggest bank fraud - in the latest regulatory clampdown.

The Reserve Bank of India (RBI) seal is pictured on a gate outside the RBI headquarters in Mumbai, India, February 2, 2016. REUTERS/Danish Siddiqui/Files

The RBI also barred the issuance of letters of comfort, but said letters of credit and bank guarantees can be continued to be issued if certain rules are met. (bit.ly/2p8Xnyk)

The instruments are all forms of trade finance often used by importers to fund their overseas purchases.

Reporting by Devidutta Tripathy, Abhirup Roy and Suvashree Choudhury; Editing by Subhranshu Sahu

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