March 13,2018:

RBI also barred issuance of the letters of comfort, but stated that letters of credit and bank guarantees can be continued to be issued if certain rules are met.

On Tuesday, Reserve Bank of India (RBI) ordered the commercial banks to stop issuing guarantees in the form of letters of undertaking (LoU) with immediate effect.

Issuance of the LoUs as a guarantee for credit, has come under fire since the instrument was grossly misused in perpetuating biggest Bank Fraud in recent history.

Instruments are all forms of trade finance which are often used by the importers to fund their overseas purchases.

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