PNB fraud repurcussions: End of banks’ LoU affair with India Inc?

Exporters say they have a tough time getting credit as lenders have turned extra cautious

Published: 27th February 2018 04:37 AM  |   Last Updated: 27th February 2018 04:37 AM   |  A+A-

Express News Service

NEW DELHI: Banks have turned ‘extremely cautious’ in issuing fresh letters of undertaking (LoUs) to businesses as a fallout of the recent spate of bank frauds. “My letter was already under process since the news came. Now the banks are saying that they cannot process the letter, even though I have duly attached all the documents. They said it will take at least one month before the situation becomes normal. My orders are stuck now,” said a textiles exporter based in Delhi.

The worst-hit post PNB scam seem to be exporters, who are having a tough time in getting credit. The banking sector has already turned cold towards the gems & jewellery sector. The exporters say it will badly hit India’s foreign trade. Indian Inc also warned that the inertia of banks against lending will undo what India has gained in the past four years in terms of ease of doing business. “As India is moving towards ‘ease of doing business’, the actions of a few fraudulent actors need not translate into more stringent regulatory norms for the entire industry sector when corporate governance structures are strictly followed,” the Confederation of Indian Industry (CII) said. Bank officials say there is fear among the bankers in issuing any fresh credit guarantee.

“After this news (about `11,400 crore PNB scam) broke out, we have issued no fresh LoU. Even those LoUs which were under process now stand cancelled. No staff is ready to issue or sign any letter in their capacity,” said a manager with State Bank of India, who added the bank withheld 58 LoUs worth `2,300 crore in the past one week alone.

Businesses say that even the normal process of lending is stuck. After a series of investigations, nobody wants to put a signature on the loan out of fear. “Let one or a few black sheep not derail our financial system, which is resilient enough to withstand this kind of shocks, though ideally such jolts are better avoided and averted through systemic reforms,” said D S Rawat, secretary-general, Assocham.


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