The Reserve Bank of India has scrapped quasi bank guarantee instruments such as the Letter of Undertaking and Letter of Comfort that blew a Rs. "Indian banking system is facing its biggest fraud with fashion jeweller Nirav Modi duping Punjab National Bank by using the Letter of Undertaking issued by the bank. A LoU is a promise by the issuing bank to pay in case of default by the one on whose behalf it was issued. "It has been decided to discontinue the practice of issuance of LoUs/ LoCs for trade credits for imports into India with immediate effect," the RBI said in a statement. “Once this is acknowledged by peer banks, PNB will make payments.”

Source: Economic Times March 13, 2018 13:05 UTC