State Bank of India says credit cost could rise post-Reserve Bank's LoU ban

On 13 March, RBI decided to discontinue the LOUs in the wake of the Rs 12,600 crore fraud at the state-run Punjab National Bank (PNB)

IANS March 16, 2018 19:23:44 IST
State Bank of India says credit cost could rise post-Reserve Bank's LoU ban

New Delhi: The RBI's decision to discontinue the Letters of Undertaking (LoUs) or Letters of Comfort (LoC) might increase the credit cost for imports as it will lead to a shift towards "other off-balance sheet" products, said a State Bank of India (SBI) report on Friday. According to SBI Ecowrap report, the shift to "other off-balance sheet" products will be "administratively time consuming" and in the short-term might impact export funding as well.

On 13 March, RBI decided to discontinue the system in the wake of the Rs 12,600 crore fraud at the state-run Punjab National Bank (PNB). "Banning LoUs/LoCs might lead to shifting to other off balance sheet products -- LCs, Bank Guarantees, other fund based facilities or on to balance sheet," the SBI Ecowrap report said.

State Bank of India says credit cost could rise postReserve Banks LoU ban

State Bank of India (SBI). Reuters.

"We, however, believe the shift to other off balance sheet products if occurs, will be administratively time consuming. However capital charge may vary for different products leading to changes in capital requirements in either direction depending on the product used and associated risk."

Earlier, banks were permitted to issue guarantee/LoU/LoC in favour of overseas supplier, bank or financial institution up to $20 million per import transaction under the automatic route for a maximum period up to one year in case of import of non-capital goods. As per the latest available RBI data, guarantees given on behalf of constituents outside India stood at Rs 1.95 lakh crore as on 31 March, 2017.

Updated Date:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

RBI maintains accommodative stance, leaves repo rate unchanged at 4%; hints at future relaxations
India

RBI maintains accommodative stance, leaves repo rate unchanged at 4%; hints at future relaxations

RBI had last revised its policy rate on May 22, in an off-policy cycle to perk up demand by cutting interest rate to historic low.

SBI Recruitment 2020: Online application for 3,850 circle-based officer posts begins today; check at sbi.co.in
India

SBI Recruitment 2020: Online application for 3,850 circle-based officer posts begins today; check at sbi.co.in

The State Bank of India (SBI) has invited online applications for the recruitment of 3,850 circle-based officers. Eligible and willing candidates can apply by 16 August via the bank's career portal sbi.co.in.

Banks' bad debt to rise sharply from 8.5% to 12.5% by March 2021 amid COVID-19: RBI report
India

Banks' bad debt to rise sharply from 8.5% to 12.5% by March 2021 amid COVID-19: RBI report

The RBI governor said preserving long-term stability of the financial system is the key to recovery of economic growth