A government official confirmed that the issue was flagged to lenders in May after several instances of prompt payments immediately after the overseas payment accounts were opened.
“The issue was flagged with the banks, who were asked to keep a watch on suspicious transactions. We have input that some of these advance payments were fraudulent,” he said, adding that lenders were to report any such activity to relevant authorities.
Advance payments are a mechanism that allows the importer to pay for goods before they are shipped to give comfort to the exporter.
Under existing regulations, if a bank is satisfied with the track record and bona fides of the importer, it can frame its own internal boardapproved guidelines for payments up to $5 million.
A senior bank executive aware of the matter said lenders will soon share their inputs both with the government and the Reserve Bank of India on measures to control such fraudulent transactions.
“One of the suggested measures is that no large value transaction for advance payment shall be allowed in a newly-opened account for at least 3-4 months,” he said, adding that the lenders are yet to finalise such terms and conditions.
Another banker said that while the chances of fraud through the issuance of LCs are less, there have been cases where fake or falsified documents have been presented for non-existent cargoes to encash LCs.
“In such cases, banks can only report discrepancies if they are found out,” he said. LCs are issued by a bank on behalf of importers to guarantee payment to the exporters provided that the terms and conditions are met as per specified document.
In 2018, the RBI scrapped quasibank guarantee instruments such as the letter of undertaking and letter of comfort for trade credits for imports into India after their misuse in the alleged Rs 14,000 crore PNB Nirav Modi scam.