Indian banks are reported to have have stopped accepting payment guarantees for exporters from foreign banks on fears of the letters of credit going bust, even as the Reserve Bank of India started close monitoring of overseas remittances under the guise of repatriation of portfolio investments, to check flight of capital.

The RBI is screening data of foreign and some private banks which act as custodians for foreign institutional investors (FIIs), according to sources close to the development.

Banks, both public and private, send capital to their foreign offices for everyday requirements in the inter-bank market and for client commitments.

Meanwhile, exporters, who met commerce and industry minister Kamal Nath, said millions of dollars worth of shipments were held up for want of payment guarantees acceptable to banks in India.

''They have millions of dollars at the ports but the Indian banks are not accepting the LoCs of foreign banks," Nath said after a meeting with exporters.

Banks report transactions on fortnightly and monthly basis  but the the RBI, sources say, is keeping a close watch on a daily basis.

Foreign investments in India include substantial investments in domestic stocks through both foreign direct investment (FDI) and FII routes.

Some overseas capital come as direct investment and some others as portfolio investment, the RBI needs to check if such remittances comply with the Foreign Exchange Management Act.

Since January 2008, FIIs have been net sellers to the tune of $10.83 billion in Indian equity markets.

An ongoing withdrawal of funds has hammered the rupee and has led to a substantial reduction in foreign exchange reserves.

The RBI had to spend huge amounts of its foreign exchange reserves to arrest the rupee fall as the flight of capital boosted dollar demand.

The rupee has dropped nearly 23 per cent against the US dollar since January this year. THE country's foreign exchange reserves fell almost $10 billion during the week ended October 10 to $274 billion.

Forex reserves with the RBI are now $35 billion down from the end-March levels, although it rose by around $23 billion on a year-on-year basis.