Importers in India are feeling the heat as banks have tightened financing regulations after the sector was rocked by a major scandal at Punjab National Bank.

Lenders such as Axis Bank, Canara Bank, IDBI Bank have either cut back on issuing Letters of Understanding (LoUs) or stopped issuing them for certain loan categories a week after the huge fraud came to light, and this has badly hit the funding of imports, which is crucial for ensuring critical supplies for India’s industrial and consumer needs, the Economic Times has reported.

Some banks have also started demanding more documents and telling clients to submit papers two days in advance. Previously, banks used to extend credit for buyers with LoUs within a day.

This has forced importers to buy dollars in the domestic spot and forwards market – which pushed down the currency and prompted the Reserve Bank of India to intervene, the daily said.

Importers across the board, and not just gems and jewelry sector, are now affected. Firms buying chemicals and computer peripherals have been told by banks to adhere to new import finance rules.

PNB adopts strict SWIFT controls

Meanwhile, the scam-tainted PNB has stepped up its controls on the use of the SWIFT global payments network (Society for Worldwide Interbank Financial Telecommunications), Reuters reported.

The new measures mean only PNB officers will be able to initiate messages on SWIFT, taking away clerks’ authority to do that. Several new limits have also been placed on the amount that officers can generate depending on their seniority in the bank hierarchy, the agency added.

Rogue officials have been accused of issuing fake LoUs and exploiting the fact that PNB’s internal software system was not linked with SWIFT. Employees were expected to manually log SWIFT activities. The State Bank of India has integratedSWIFT with its core banking system, but many other state-owned banks have not.

The PNB scam has entangled many prominent Indian lenders. The State Bank of India has 13.6 billion rupees ($20.9 million) of exposure to the fraud, while UCO Bank and Allahabad Bank have 26.56 billion rupees (about $41 million) and 20 billion rupees (about $31 million) respectively. These lenders have insisted that PNB should honor these claims.