Amid reports of banks clamping down certain impractical rules and procedures for trade finance, the ASSOCHAM said banks must not "over-react" to the situation as it can have a detrimental impact on trade.
"The letters of credit or letters of undertaking are an internationally accepted system of global trade. While we need to ensure safe and sound functioning of the system and not allow loopholes like those in the PNB system of money or guarantee transfer, let banks not over-react and hit the trade and industry," the ASSSOCHAM said.
The chamber also urged the Finance Ministry and Reserve Bank of India (RBI) to send strong messages across different stakeholders about the robustness of the Indian financial sector, and make their stance against offenders clear.
"By all means, punish the offenders at a fast speed and set examples; but the business should not be allowed to halt. There is a need for vigilance among all the lenders, even in the private sector. After all, in an ever-connected world, there are several common technology pathways, which can be subverted. It is about time to restore confidence and move on," it said.
For the unversed, PNB detected a 1.77 billion dollar (Rs 11,400) scam earlier this month, in which noted jewellery designer Nirav Modi acquired fraudulent letters of undertaking from one of its branches for overseas credit from other Indian lenders.
Mehul Choksi, Modi's uncle and the owner of Gitanjali Gems, is also being probed for his involvement in the fraud.
PNB lodged two financial fraud complaints of Rs 11400 crore and Rs 280 crore against Nirav Modi, his family members and Mehul Choksi.
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