Don't think scrapping LoUs will impact corporates significantly: Union Bank of India

Reserve Bank of India (RBI) has discontinued the issuance of letters of undertaking (LoU) and letters of comfort (LoC)for trade credit by banks. In an interview with CNBC-TV18, Rajkiran Rai G, Managing Director & CEO of Union Bank of India shared his views and outlook on the same.

LoU is part of the working capital assessment for any corporate. So In case the LoU is stopped, the corporates can always shift to other forms of raising working capital. So the corporates will not have any problem in working capital, he said.

Cost wise, it will make a difference to the customer so they may have to shift to more of documentary credit like letter of credit kind of thing, he added.

LoUs which are already issued will get squared off in the course of time and further LoUs will not be issued, so customer has to shift to some other form of raising working capital, said Rai.

According to him, deposit rates are firming up and the reasonable rate for bond yields should e 7.8-7.6. There is no selling or buying happening in the market because of lack of action in this market, he said.

He expects it to cool down to those levels by March end, he further mentioned.

For full interview, watch accompanying video…