Skip to main content

LoUs should be restored at earliest with safeguards: Par Panel to RBI

By
The committee stated that RBI should have engaged more in consultations with stakeholders on the matter before resorting to discontinuation of LoU/LoC
A parliamentary panel on Monday asked RBI to restore Letters of Undertaking (LoUs) -- banned after their misuse in the Rs 140 billion PNB scam -- at the earliest with proper safeguards in order to increase the availability of credit for traders. The Parliamentary Standing Committee on Commerce said in its report that the ban of LoU/LoC has resulted in rise in the cost of credit by 2 to 2.5 per cent. It said the move would certainly affect the cost competitiveness of country's trade and industry and have a cascading effect on jobs and the loss of jobs is something the country can ill-afford.
The committee stated that RBI should have engaged more in consultations with stakeholders on the matter before resorting to discontinuation of LoU/LoC. "It is of the considered opinion that LoU/LoC should be restored at the earliest albeit with proper safeguards. Its restoration assumes more significance in the face of the fact that the content of imports is over 20 per cent of India's total exports," it said in its report - Impact of banking Misappropriation on Trade and Industry.
In March, Reserve Bank of India banned issuance of Letters of Undertaking (LoUs) and Letters of Comfort (LoC), used extensively for trade finance, following the unearthing of fraud at Punjab National Bank (PNB) that was carried out allegedly by diamond jeweller Nirav Modi and his associates. The committee said that in present times when the currency is witnessing high depreciation, it is imperative that the cost of credit for imports must be minimal. "The ban on LoU/LoC takes away the benefit of cheap source of funds availed by the importers. Costly imports shall lead to higher costs of production and erode the competitiveness of the domestically produced goods," it said.
It also stated that discontinuation of LoU/LoC as a response to the fraud and misappropriation has set in a contagion of conservatism in banking sector. "The caution has inadvertently made banks becoming inaccessible to MSME sector....such an approach has the dangers of making banking services elitist and subservient to a few large corporates leaving out the vast majority of MSME units which are not able to measure to the standards and parameters laid down by external credit rating agencies for getting AAA or AA ratings," it said.
The Business Standard, 07th August 2018

Comments

Post a Comment

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

By
  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...
Post a Comment
Read more

External spillovers likely to hit India's financial system: RBI report

By
  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...
Post a Comment
Read more

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

By
  New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...
Post a Comment
Read more