Reserve Bank of India turns up heat on commercial lenders after $2 billion fraud

FILE PHOTO: The Reserve Bank of India (RBI) seal is pictured on a gate outside the RBI headquarters in Mumbai, India, February 2, 2016. REUTERS/Danish Siddiqui/File photo

Vastavam web: The Reserve Bank of India has asked commercial lenders to provide it with details of all letters of undertaking – a form of credit guarantee at the centre of an alleged $2 billion fraud – issued by them in the past several years, according to four bankers who have seen the directive.The regulator is ratcheting up pressure on lenders, increasing its scrutiny and laying down deadlines for them to fix gaps in their systems, in the aftermath of the country’s biggest bank fraud.

The Reserve Bank of India (RBI) wrote to all banks a week ago asking for details of the LoUs they had written, including the amounts outstanding, and whether the banks had pre-approved credit limits or kept enough cash on margin before issuing the guarantees, the sources said.One of the sources said the regulator had asked for details of LoUs issued as far back 2011, while another said the deadline for banks to respond was earlier this week.Importers typically use LoUs issued by their local bank to raise cheaper foreign currency loans overseas to fund purchases.

The bank has also said the employees intentionally did not enter the LoUs in the bank’s core accounting system to prevent the alleged fraud from being detected.In sweeping changes to bank protocols after the fraud, the RBI had asked banks to comply within strict deadlines on more than two dozen checkpoints, most notably to connect the SWIFT interbank messaging system with their core banking software by April 30.