• India
  • Sep 18

Explainer / Export Credit Insurance

The Export Credit Guarantee Corporation (ECGC) has introduced a new Export Credit Insurance Scheme (ECIS) called NIRVIK to enhance loan availability and ease the lending process. The details of the scheme were shared by Union ministers Piyush Goyal and Hardeep Singh Puri in New Delhi on September 16.

Under the scheme, the insurance cover guaranteed will cover up to 90 per cent of the principal and interest. The cover will include both pre- and post-shipment credit. The ECGC currently provides credit guarantee of up to 60 per cent loss.

Benefits of enhanced insurance over

* The main aim of the scheme is to enhance accessibility and affordability of credit for exporters. The decision will make Indian exports competitive and ECGC procedures exporter friendly, benefiting MSME exporters with a scheme for reimbursing taxes, reduced insurance cost and ease of doing business.

* The insurance cover is expected to bring down the cost of credit due to capital relief, less provision requirement and liquidity due to quick settlement of claims and will ensure timely and adequate working capital to the export sector.

* Under the NIRVIK scheme, borrowers in the gems, jewellery and diamond (GJD) sector with a limit of more than Rs 80 crore will have a higher premium rate in comparison to the non-GJD sector borrowers of this category due to the higher loss ratio.

* The ECGC insurance cover will provide additional comfort to banks as the credit rating of the borrower will be enhanced to AA rated account. The increased cover will ensure that foreign and rupee export credit interest rates are below 4 per cent and 8 per cent respectively for the exporters.

Highlights of NIRVIK scheme

* The finance ministry has decided to increase the insurance cover for banks up to 90 per cent for working capital loans and moderation in premium incidence for the MSME sector to provide additional support to the banks in the wake of a global slowdown and rising NPAs.

* The enhanced insurance cover will ensure that foreign and rupee export credit interest rates will be below 4 and 8 per cent respectively for exporters.

* It will catalyse the banks to enhance the volume of export credit lending, especially to the MSME sector with optimal pricing due to capital and risk optimisation.

* The existing insurance covers issued by the ECGC will continue for the existing customer banks and similar covers will also be made available to all other banks. All standard accounts covered under ECGC on the date of transition shall be eligible for the insurance cover under the ECIS.

* The insurance cover will include not only the principal outstanding but also the unpaid interest for a maximum of two quarters or the NPA date, whichever is earlier.

* The coverage has been increased to 90 per cent from the present average of 60 per cent for both principal and interest.

* It will also cover both pre-shipment and post-shipment advances unlike the present system, where two different documents are issued by the ECGC.

* The scheme aims to simplify the procedure for settlement of claims and provisional payment of up to 50 per cent within 30 days on production of proof of end-use of the advances in default by the insured bank.

* The scheme will be in force for a period of five years and on the conclusion, the standard ECGC covers will be made available to the banks with its regular features.

* For accounts with limits below Rs 80 crore, the premium rates will be moderated to 0.60 per annum and for those exceeding Rs 80 crore, the rates will be 0.72 per annum for the same enhanced cover.

* Further, the scheme will mandate inspection of bank documents and records by ECGC officials for losses exceeding Rs 10 crore as against the present Rs 1 crore.

* The banks shall pay a premium to ECGC monthly on the principal and interest as the cover is offered for both outstandings.

* Other aspects such as seeking approval of limits, monthly declarations with premium, report of default, lodging of claim, extension in due date under pre-shipment / post-shipment, placing of borrower in specific approval list, checking of buyers specific approval list and checking of restricted cover category and sharing of recovery will continue as per the existing terms and conditions of cover of ECGC.

* The banks will also continue to follow the internal guidelines of the RBI relating to export finance backed by enhanced due diligence on the borrower.

ECGC

The Export Credit Guarantee Corporation of India is a state-owned firm established in 1957 to promote exports by providing credit insurance services. It provides Export Credit Insurance to Banks (ECIB) to protect them from losses on account of export credit at the pre- and post-shipment stage given to exporters due to the risks of insolvency or protracted default of the exporter borrower.

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