Important Topic: Letter of Undertaking (LoU)

Important Topics for Competitive Exams

Important Topic

Explanation: LoUs are used by a bank’s customer to avail short-term credit in a foreign country. These transactions are not retail in nature and are mostly used by businesses for import of goods.

If the lending bank is convinced, it will issue an LoU, which when given to an overseas branch of another Indian bank would result in release of the amount in foreign currency. This amount does not come in to customer's account directly; it goes to a specific bank account of the customer's banker back home. It is called Nostro account. The customer can then decide in whose favour the payment needs to be done.

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