A major trade-finance dispute between state-run Canara Bank and gold retailer Rajesh Exports Ltd has exposed the lender to an outstanding liability of approximately ₹509 crore. At the heart of the controversy is a Letters of Credit (LC) mechanism used to finance international gold imports. Under the agreement, Canara Bank paid overseas suppliers upfront upon receiving shipping documentation, with the understanding that Rajesh Exports would later reimburse the bank.
The financial loop broke in 2020 when multiple LC-backed payments matured and Rajesh Exports failed to repay the lender, shifting the entire financial risk onto Canara Bank. The situation is complicated by the fact that many of the overseas payments were routed to Valcambi SA, a Swiss gold refinery that operates as a step-down subsidiary of Rajesh Exports. This allowed funds from the state-run bank to flow directly to an overseas sister company, while the non-performing repayment obligation remained tied to the Indian parent entity.
Following the collapse of the repayment cycle, Canara Bank classified the unpaid devolved LC liabilities as a stressed asset. Signaling major challenges in recovering the dues through standard banking channels, the lender has officially initiated recovery proceedings and placed the massive ₹509-crore exposure up for sale to asset reconstruction firms.
In its defense, Rajesh Exports has strongly disputed the bank’s non-performing asset claims. The company argues that the financial gridlock did not arise from a conventional repayment default, but rather from unfavorable foreign exchange movements and the bank’s flawed management of forex transactions. Furthermore, the gold exporter maintains that the entire arrangement was securely backed by cash margins, deflecting the blame for the multi-crore breakdown back onto the lender.
