PARAGRAPH OF THE DAY –
Credit tangle: on LoU ban
A month after the ₹12,800-crore letters of undertaking (LoUs) fraud at Punjab National Bank came to light, the Reserve Bank of India has decided to ban such instruments as well as letters of comfort issued by bankers to businesses for international transactions. While the government has been in fire-fighting mode, unleashing all investigative agencies to probe the fraud, this is the first major step by the central bank on the issue, apart from asking banks to ensure there are no slip-ups between their core banking systems and the SWIFT mechanism used for international money transfers. LoUs are among the most popular instruments to secure overseas credit by importers — known as buyers’ credit in banking parlance — because of their attractive pricing. It is estimated that overall, bank finance for imports into India is around $140 billion, of which over 60% is funded through such buyers’ credit. Naturally, industry is unhappy with the RBI decision as this would raise the cost for importers, who will now need to rely on more expensive instruments such as bank guarantees and letters of credit. The move will also impact the competitiveness of exporters who import raw materials for their products. While the central bank had earlier blamed “delinquent behaviour by one or more employees of the bank” and failure of internal controls for the PNB-Nirav Modi fiasco, RBI Governor Urjit Patel has finally commented on the fraud. Mr. Patel said he had chosen to speak because the central bank also feels the anger and pain over the banking sector frauds that amount to “looting” the country’s future by “some in the business community, in cahoots with some lenders”. Reiterating that PNB’s internal systems failed to take note of the RBI’s warnings about such risks, Mr. Patel took on severe criticismabout the RBI’s inability to detect the fraud. He stressed that the RBI didn’t have adequate powers to regulate public sector banks, and it could not remove any of their directors or liquidate such a lender, as it can in the case of private sector banks. He made an eloquent demand that the owner of public sector banks (that is, the government) must consider making the RBI’s powers over banks ‘ownership-neutral’ and say what could be done with these banks. The RBI’s stance is valid, as is its discomfort with knee-jerk reactions and the blame games since the fraud came to light. In the very same vein, its omnibus ban of LoUs will impact the $85 billion buyers’ credit market that was mostly conducted in accordance with the law of the land. If an individual or some failed systems of a bank were indeed to blame, why should bona fide transactions suffer? Perhaps the RBI could have tightened the norms for LoUs and introduced safeguards based on the latest learnings. It is still not too late to do that.
WORDS AND MEANING –
Came to light
Meaning: If facts come to light, they become known publicly.
Example: Fresh evidence has recently come to light that suggests that he didn’t in fact commit the murder.
Synonyms: Reveal, Disclose
22) Letters of comfort
Meaning: A letter from a company that tells a bank that it supports a request for a loan made by one of its subsidiary companies (= one of the companies that it owns)
Example: The parent company withdrew its letter of comfort and the funding required to sustain the subsidiary.
23) Fire-fighting
Meaning: Spending time on problems that need to be dealt with quickly, instead of working in a calm, planned way.
Example: I spend all my time firefighting rather than making any progress.
24) Unleashing
Meaning: Cause (a strong or violent force) to be released or become unrestrained.
Example: “the failure of the talks could unleash more fighting”
25) Parlance
Meaning: A particular way of speaking or using words, especially a way common to those with a particular job or interest.
Example: “dated terms that were once in common parlance”
26) Letters of credit
Meaning: A letter issued by a bank to another bank (especially one in a different country) to serve as a guarantee for payments made to a specified person under specified conditions.
27) Delinquent
Meaning: (typically of a young person) tending to commit crime, particularly minor crime.
Example: “delinquent teenagers”
Synonyms: Lawless, Criminal
Antonyms: Well-behaved, Conformist
28) Fiasco
Meaning: A complete failure, especially a ludicrous or humiliating one.
Example: “his plans turned into a fiasco”
Synonyms: Failure, Disaster
Antonyms: Success
29) Looting
Meaning: Steal (something) from someone.
Example: “a gang looted Rs. 1.5 lakh from a passenger”
Synonyms: Ransack, Sack
30) Cahoots
Meaning: Colluding or conspiring together secretly.
Example: “the area is dominated by guerrillas in cahoots with drug traffickers”
Synonyms: Conniving, Allied
31) Reiterating
Meaning: Say something again or a number of times, typically for emphasis or clarity.
Example: “she reiterated that the government would remain steadfast in its support”
Synonyms: Repeat, Restate
32) Criticism
Meaning: The expression of disapproval of someone or something on the basis of perceived faults or mistakes.
Example: “he received a lot of criticism”
Synonyms: Censure, Denunciation
33) Liquidate
Meaning: Wind up the affairs of (a business) by ascertaining liabilities and apportioning assets.
Example: “if the company was liquidated, there would be enough funds released to honour the debts”
Synonyms: Dissolve, Disband
34) Eloquent
Meaning: Clearly expressing or indicating something.
Example: “the bus journey alone is eloquent of class inequality”
Synonyms: Expressive, Suggestive
35) Knee-jerk reactions
Meaning: (of a response) automatic and unthinking.
Example: “a knee-jerk reaction”
36) Blame games
Meaning: A situation in which one party blames others for something bad or unfortunate rather than attempting to seek a solution.
Example: “he elects to play the blame game but that isn’t very constructive”
37) Omnibus
Meaning: Comprising several items.
Example: “omnibus editions of novels”
38) Conducted
Meaning: Lead or guide (someone) to or around a particular place.
Example: “he conducted us through his personal gallery of the Civil War”
Synonyms: Escort, Guide
39) Accordance
Meaning: In a manner conforming with.
Example: “the ballot was held in accordance with trade union rules”
Synonyms: Following
40) Tightened
Meaning: Make or become tight or tighter.
Example: “he tightened up the clips”
Synonyms: Secure, Strengthen
Antonyms: Loosen, Slacken
