RBI bans letters of undertaking for in search of overseas loans

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The Reserve Bank of India (RBI) has decided to discontinue the practice of issuing letters of undertaking(LOUs)/letters of comfort with immediate effect

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The move is likely to lead to a freeze in trade financing activities in India, increasing costs for importers who have relied on these instruments to get cheaper overseas credit to pay suppliers.

Also Read – PAN CARD details are not required for purchase of jewllery upto Rs.2 lakh

LOUs are the letters of understanding used by diamond trader NiravModiin the case of PNB fraud RBI also discontinue overletters of comfort (LoCs) for trade credits for imports to India.

The decision will apply to AD (authorised dealer) category-I banks.

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