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To Counter PNB Stand, Banks Planning to cite 180-day stipulation

PNB Fraud

Lenders enmeshed in the Nirav Modi fraud will contest the stand of Punjab National Bank, saying they had flouted credit norms. The lenders are planning to cite 180-day stipulation on buyer’s loans for importing pearls for which PNB had issued payment guarantees.

The Indian Banks’ Association (IBA) had meeting on Saturday. The counterparty lenders that has paid out money based on PNB’s letter of undertaking. They stated that they had followed all Reserve Bank of India rules while extending credit.

Furthermore, the LoUs issued by PNB was not for gold and diamonds import, for which only a 90-day credit period is allowed. Pearls would be categorized under non-capital goods, enjoying credit facilities for 180 days. PNB had said that it would honor claims based on LoUs that haven’t been extended beyond 90 days and challenge those that have.

“We don’t understand why PNB is saying this. The RBI circular is on its website for everyone to see,” said a banker who was at the IBA meeting. “It only mentions 90-day credit for semi-precious and precious stones, and there is no mention of pearls at all.”

What RBI has to say

According to RBI rules, buyers’ credit for precious and semi-precious stones cannot be extended for more than three months, while credit for non-capital goods can be extended for 180 days.

The issue ignited when PNB said banks should not have extended buyers’ credit toward import of pearls for 180 days because the RBI rule prescribed a 90-day cut-off limit.

Since there is no specific mention of pearls in the RBI circular, banks have been treating them as non-capital goods, and continue to extend credit for a period of 180 days.

PNB’s Stand

Banks are also upset by PNB’s complaint to the CBI in which it blamed other lenders for not conducting proper due diligence. PNB said that the RBI has prescribed that credit for import for semi-precious and precious stones, including pearls, should not be more than 90 days.

“This should have evoked suspicion in the minds of overseas branches of Indian banks extending buyers’ credit. These banks never raised any alarm on violation of RBI guidelines and continued to provide funding against fraudulent LoUs,” PNB said in its complaint to CBI.

It also said that there was no documentary evidence available to prove that these import transactions were bonafide trade transactions and since there are many discrepancies in LoUs, it could have been easily detected by ordinary due diligence.

So, it seems PNB is trying all tricks to keep themselves paying back to the bankers, but bankers are all prepared to prove their claim and get justice.

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