RBI bans issuance of LoUs

RBI bans issuance of LoUs

Rohan Takalkar
/ Categories: Trending, Markets

The aftermath of PNB scam has created various shifts in banking system and regulators have tightened the grip on banks across the board. In a new resolution shared by RBI, it has banned banks for issuance of LoU (Letter of Undertaking) for availing buyers credit.

The benefit of LoUs is mainly for small and medium enterprises who avail such credit for daily business purpose. The gems and jewellery industry will be worst hit by this move. LoUs have long been main source of funding for the industry to avail buyers credit.

Further, this will also be a discouragement for some small and medium enterprises as banks find it difficult to lend SMEs due to higher delinquency. These include small auto components maker and also some from textile industry who also avail LoU as funding source.

However, the industry body suggests that LoUs account for 4 per cent of the total trade finance which indicates a lower impact on imports. However, banks have sought clarification from RBI for alternative sources of finance to importers and repayment facilities to be provided to borrowers. This might impact the non-interest income of banks till the time RBI removes the ban

Previous Article MMTC locked in 20 per cent upper circuit on bonus issue plan
Next Article Central Bank of India up 15 per cent post block deals
Rate this article:
4.0

DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

Corresponding SEBI regional/local office address- SEBI Bhavan BKC, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra.
Tel: +91-22-26449000 / 40459000 | Fax : +91-22-26449019-22 / 40459019-22 | E-mail : sebi@sebi.gov.in | Toll Free Investor Helpline: 1800 22 7575 | SEBI SCORES | SMARTODR