The decision to discontinue the practice of Letters of Undertakings and Letters of Comfort for trade finance comes into force with immediate effect, says the RBI

In the wake of an escalating controversy over the Nirav Modi-centred scam at the Punjab National Bank (PNB), the Reserve Bank of India (RBI) has decided to discontinue the practice of providing guarantees by issuing letters of undertaking (LoUs) and letters of comfort (LoCs) for trade credits for imports to India.

The action comes into immediate effect. The decision will apply to AD (authorised dealer) category-I banks.

The PNB said the fraudulent transactions had resulted in a loss of over ₹12,600 crore.