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RBI initiates special audit of PSBs with focus on trade finance

Special audit of state-owned lenders has been initiated by RBI with focus on trade financing activities, especially relating to letters of undertakings (LoUs). In addition, the RBI has asked all banks for details of the LoUs they had written and further details pertaining to the guarantees. Most of the big banking frauds unearthed in the recent past pertain to trade finance, with the spotlight on PNB fraud by Nirav Modi and his associates. Many of the wilful default cases have also been due to trade finance. Besides, the government on its part has asked the state-owned banks to scrutinize all cases of non-performing assets (NPAs) exceeding Rs 50 crore for possible fraud and report the matter to the Central Bureau of Investigation (CBI). Banks have also been asked by the finance ministry to come up with a “pre-emptive” action plan within a fortnight to combat rising operational and technical risks, and assign clear accountability to senior functionaries.