Rattled by a spate of banking frauds, RBI has initiated special audit of State-owned lenders with focus on trade financing activities, especially relating to issuance of letters of undertaking (LoUs) by them, banking sources said.
In addition, the RBI has asked all banks for details of the LoUs they had issued, including the amounts outstanding, and whether the banks had pre-approved credit limits or kept enough cash on margin before issuing the guarantees.
Most of the big banking frauds, which were unearthed in the recent past, including the one perpetuated by diamantaire Nirav Modi and his associates, pertain to trade finance. Also, many of the wilful default cases have their roots in trade finance, the sources told PTI.
In view of the recent ₹12,646-crore PNB scam, perpetuated through fraudulent issuance of LoUs with the connivance of the bank’s staff, it was pertinent for the regulator RBI to examine the issue of trade finance which also included issuance of letters of credit (LC) and LoUs, sources said.
NPA scrutiny
The government recently asked the State-owned banks to scrutinise all cases of non-performing assets (NPAs) exceeding ₹50 crore for possible fraud and report the matter to the Central Bureau of Investigation .
Banks have also been asked by Finance Ministry to come up with a “pre-emptive” action plan in a fortnight to combat rising operational and technical risks, and assign clear accountability to senior functionaries.
