Order private banks to honour PSBs’ Letters of Credit: GCCI to RBI

Order private banks to honour letters of credit (LCs) of public sector banks (PSBs), the Gujarat Chamber of Commerce and Industry (GCCI) told national banking regulator RBI on Wednesday during a monthly review meeting.

Angry businessmen complained that a section of banks not honouring commitments of other banks will create a crisis of confidence. If foreign banks will take cue from Indian private banks, the credibility of Indian banking sector will be at stake, they warned.

“We objected to private banks’ decision not to honour the LCs of PSBs. Do we want to send a message globally that our government-run banks are not trustworthy?” said Shailesh Patwari, president of GCCI.

He said this is a repeat of what private banks did during the Madhavpura Cooperative Bank scam 17 years ago. At that time representatives of private banks tried to poach customers of cooperative banks, claiming the days of cooperative banks were numbered. Now the same is happening with PSBs. It seems private banks want to grow their business at the expense of PSBs,” he said.

During the meeting, he reminded officials of private banks that in 2008 and 2009 ICICI Bank was facing a crisis but other banks did not try to benefit unduly from it.

GCCI suggested that neither the banking regulator nor banks need to be over-cautious regarding Letters of Undertaking (LoU) and buyer’s credit. There has been ample evidence that large companies dominate bad loans and because of large defaulters, smaller players have to face the heat.

“There should be some mechanism where deserving players benefit. There should be a cap, but one should be cautious,” said Jaimin Vasa, senior VP, GCCI.