Description
A Dissertation report prepared about the woking process of ECGC.
DISSERTATION
ON
“A STUDY OF FUNCTIONS AND PERFORMANCE OF EXPORT CREDIT
GUARANTEE CORPORATION OF INDIA”
SUBMITTED IN PARTIAL FULLFILLMENT OF THE REQUIRMENT FOR
THE AWARD OF THE DEGREE OF
MASTER OF FOREIGN TRADE
(2013-2014)
Under the Supervision of: Submitted by:
Dr. R.S. Meena Vikash
Associate Professor MFT IV Semester
Faculty of Commerce Roll No. 12387C0030
BHU, Varanasi Enroll No. 346087
FACULTY OF COMMERCE
BANARAS HINDU UNIVERSITY
VARANASI
FACULTY OF COMMERCE
MASTER OF FOREIGN TRADE
B.H.U VARANASI-221005
Ref. No. ……….. Date-…………….
CERTIFICATE OF SUPERVISOR
This is to certify that Mr. Vikash has completed this project report on the topic ?A Study of
Functions and Performance of Export Credit Guarantee Corporation of India” in the
partial fulfillment of the degree of Master of Foreign Trade course of the Faculty of commerce
B.H.U.
His dissertation entitled ?A Study of Functions and Performance of Export Credit
Guarantee Corporation of India? presents a compilation of various information and data which
he has collected from different secondary sources and websites.
I wish him all the success and a bright future ahead.
Dr. R.S. Meena
Associate Professor
Faculty of Commerce
Banaras Hindu University
PREFACE
The dissertation report is prepared in respect of dissertation program to be undertaken in 4
th
semester of Master of Foreign Trade (MFT).
The dissertation project entitled as “A Study of Functions and Performance of EXPORT
CREDIT CORPORATION OF INDIA” is a part of the study of Master of Foreign Trade
(MFT) 4
th
semester examination.
Foreign Trade plays a crucial role in India’s economic growth. The project explores the trends of
Insurance available for the Exporters as well as for banks. Government of India is taking every
step cautiously to promote Exports of India. Since exports allow the inflow of foreign exchange
in India and thus makes it economically powerful.
In order to achieve the objective and better understand the export insurance available for
Exporters and Banks. This report is written in an easy and understandable language. I have given
my full effort to complete this dissertation in an appropriate way.
Vikash
Master of Foreign Trade
4
th
Semester
Roll – 12387CO030
ACKNOWLEDGEMENT
I take this opportunity to express my sincere gratitude to all those who have guided and
supervised me in completing my Dissertation Report. I must acknowledge my indebtedness to
various scholars and their works whose ideas I have interwoven in my dissertation report.
I am profoundly grateful to my revered mentor to Dr. R.S.Meena who has supported and
motivated me continuously. It was his kind support and guidance that I could complete the
project work. I am also thankful to Prof. A.R.Tripathi, Head and Dean of the Faculty of
Commerce who provided this opportunity.
I would also like to express my sincere gratitude to my parents. It is with their blessings the
present work has seen the light of the day. Last but not the least, I am thankful and indebted to
Almighty God, who blessed and enabled me to complete the work.
Date - Vikash
Place - Varanasi Master of Foreign Trade (MFT)
IV
th
– Semester
12387C0030
DECLARATION
I hereby declare that this dissertation titled ?A Study of Functions and Performance of Export
Credit Guarantee Corporation of India? is my original work and have been prepared under the
supervision of Dr. R.S.Meena, Faculty of Commerce, B.H.U.
All the information mentioned in this project work is true and accurate to the best of my
knowledge.
Vikash
MFT- IV
th
Sem.
Roll No.-30
CONTENTS
1. INTRODUCTION…………………………………………………………..7 -23
? Introduction
? History of ECGC
? Role of ECGC
? Board of Directors and Organization Structure
? Code of Ethics
? Objectives of ECGC
? What does ECGC do
? How does ECGC help Exporters
? Need for Credit Insurance
? Notable Records of ECGC
? Objectives of Study
? Scope of Study
? Research Methodology
? Plan of Study
2. Working Process of ECGC…………………………..……………………24 - 79
? Functions of ECGC
? Covers Issued By ECGC
? ECGC – WTPS Cover
? Overseas Investment Insurance
? Schemes for Project Exports
? Buyer’s Credit / Line of Credit Cover
? Types of Investment
? New Initiatives
? Payment of Claims
? Specific Policies for Supply Contract
? Export Credit Insurance for Banks
? Export Credit Insurance for Exporters
3. Performance Analysis & CSR………………………………………….80 – 90
? Objectives of EPG
? Features of EPG
? Performance Analysis
? Graphical Representation
? Corporate Social Responsibility
Findings and Suggestions
Bibliography
CHAPTER - 1
INTRODUCTION
The Export Credit Guarantee Corporation of India Limited (ECGC) was established on 30 July
1957 with an objective to provide insurance cover in respect of risks in export trade. These risks
may include loss of money on account of foreign buyer becoming bankrupt or sudden import or
exchange restrictions resulting in stopping of payments etc. The Export Credit Guarantee
Corporation of India Limited is a company wholly owned by the Government of India based in
Mumbai, Maharashtra. It provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce. Government of India had initially set up Export Risks
Insurance Corporation (ERIC) in July 1957. It was transformed into Export Credit and Guarantee
Corporation Limited (ECGC) in 1957 and to Export Credit Guarantee Corporation of India in
1983.
ECGC of India Ltd, was established in July, 1957 to strengthen the export promotion by
covering the risk of exporting on credit. It functions under the administrative control of the
Ministry of Commerce & Industry, Department of Commerce, Government of India. It is
managed by a Board of Directors comprising representatives of the Government, Reserve Bank
of India, banking, Insurance and exporting community.
ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The
present paid-up capital of the company is Rs.900 crores and authorized capital Rs.1000 crores.
Shri Anand Sharma, Minister of Commerce & Industry, Government of India, inaugurated the
first overseas office of ECGC in London on September 17, 2013.
The mission of ECGC is to support the Indian Export Industry by providing cost effective
insurance and trade related services to meet the growing needs of Indian export market by
optimal utilization of available resources. ECGC Export Credit Guarantee Corporation of India
Ltd. (ECGC) is a Government of India Enterprise which provides export credit insurance
facilities to exporters and banks in India. It functions under the administrative control of Ministry
of Commerce & Industry, and is managed by a Board of Directors comprising representatives of
the Government, Reserve Bank of India, banking and insurance and exporting community. Over
the years, it has evolved various export credit risk insurance products to suit the requirements of
Indian exporters and commercial banks. ECGC is the seventh largest credit insurer of the world
in terms of coverage of national exports. The present paid up capital of the Company is Rs. 900
Crores and the authorized capital is Rs. 1000 Crores. The Export Credit Guarantee Corporation
of India Limited (ECGC) is a company wholly owned by the Government of India based in
Mumbai, Maharashtra. It provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce. Government of India had initially set up Export Risks
Insurance Corporation (ERIC) in July 1957. It was transformed into Export Credit and Guarantee
Corporation Limited (ECGC) in 1964 and to Export Credit Guarantee of India in 1983 ECGC is
essentially an export promotion organization, seeking to improve the competitive capacity of
Indian exporters by giving them credit insurance covers comparable to those available to their
competitors from most other countries. It keeps its premium rates at the lowest level possible.
Payments for exports are open to risks even at the best of times. The risks have assumed large
proportions today due to the far-reaching political and economic changes that are sweeping the
world. An outbreak of war or civil war may block or delay payment for goods exported. A coup
or an insurrection may also bring about the same result. Economic difficulties or balance of
payment problems may lead a country to impose restrictions on either import of certain goods or
on transfer of payments for goods imported. In addition, the exporters have to face commercial
risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer
going bankrupt or losing his capacity to pay are aggravated due to the political and economic
uncertainties. Export credit insurance is designed to protect exporters from the consequences of
the payment risks, both political and commercial, and to enable them to expand their overseas
business without fear of loss.
India’s known strength in handicrafts, gems & Jewelleries, Apparels, software and IT and
tremendous e-commerce potential ensures progressive up trend in growth of the Indian economy.
The Government’s current Import & Export policies offer a more investor friendly economic
environment and are geared towards more investment in promoting Import and export
Trade. These measures have had a significant thrust on promoting the development of
infrastructure facilities in various parts of India, Like Export Promotion Zones etc. Every
business the probability of risk & profit .In the case of International business, the credit risk is
higher. Hence the Institutions like Export Credit Guarantee Corporation of India Ltd and its
services are more credible.
HISTORY OF THE ECGC
The need for export promotion had started immediately after Independence in 1947. In 1953, a
proposal for initiation of an export credit guarantee scheme was put forward at a meeting of the
Export Advisory Council. Ministry of Commerce & Industry analyzed in depth the pros and cons
of the Export Credit Insurance Scheme and a revised draft proposal on the scheme were
presented to the Export Advisory Council in 1955. Shri T.T. Krishnamachari, Finance Minister
in Pandit Nehru’s cabinet appointed a special committee under the Chairmanship of Shri
T.C.Kapur to examine the feasibility of setting up an effective organization to provide insurance
against export credit risks. The Government accepted the recommendations of Kapur Committee
and thus the Export Risk Insurance Corporation (ERIC) was registered on 30th July 1957 in
Mumbai as a Private Ltd. Company, entirely state owned, under the Companies Act with an
authorized capital of Rs.5 crores and paid up capital of Rs.25 lakhs. Shri Ratilal M Gandhi was
the First Chairman and Shri T C Kapur was the First Managing Director of the Corporation. Shri
Morarji Desai, Union Commerce Minister inaugurated ERIC and the first Policy was issued on
14th October 1957. After introduction of insurance covers to banks during the period 1962-64,
ERIC’s name was changed to Export Credit & Guarantee Corporation Ltd in 1964. To bring
Indian identify in the name, ECGC was renamed as Export Credit Guarantee Corporation of
India Ltd in the year 1983.
Competitive Forces
A couple of years ago, a complete survey was conducted by New India Assurance to
start credit insurance. Large business houses were approached by them mainly in North
and Western Zones. Due to lack of expertise in credit insurance, non cooperation of
venture partner and teething problems in handling export customers still New India
Assurance is in a very low profile. It is a breathing time for them to consolidate their
strength and strike back. ICICI also has started its credit insurance business as a part of
ICICI Prudential Insurance division. Its core competency is in banking, since it has
achieved the growth of 366 percent during the last financial year. It is so aggressive in
opening offices in every nook and corner of the country. It may develop a system for
credit insurance and appoint one or two members in all the branches for credit
insurance. Therefore, ECGC has to go on war footing in order to sustain its current
position.
Policy from the Ministry of Commerce
The Ministry of Commerce, Government of India has taken un-precedent steps to
enable exporters move fast to grab markets. India’s balance of payment position is
positive with many countries this year which includes China. Focus Sub-Saharan
Africa, Focus Latin America and Focus CIS programs introduced by Commerce
Ministry have yielded good results over the past five years. The
Government is also on the verge of passing SEZ bill and it will become healthy,
authentic and practical guidelines for many developers of SEZ and prospective units
operating in the Zones. ECGC advantage:
I. Insurance as a field at macro level is becoming vibrant now.
II. Though credit insurance is the focus on exporters, there is a change in the
awareness level from the past to present.
III. ECGC is becoming closer to customers by opening branches, conducting
programs through promotional councils and meeting with banks.
IV. Optional products are available from ECGC for exporters to choose the right
product suitable to their business.
V. ECGC is becoming more of a financial facilitator in the recent past from its
traditional concentration on risk coverage.
HOW TO OBTAIN A POLICY?
? The exporter has to send a duly filled policy proposal form along with a draft or cheque
of Rs. 10,000 as the minimum premium to the ECGC branch.
? The exporter then has to obtain a credit limit for each of his buyers. The credit limit is the
indicative of safe amount of credit that can be extended to the buyer. The proposal for
credit limit is to be given in Form144 along with a draft or cheque of Rs. 500. This limit
can also be extended.
? ECGC in partnership with its agencies abroad decides the credit worthiness of the buyer
and accepts or rejects the credit limit.
? After obtaining the credit limit the exporter has to furnish the details of the exports made
to each buyer every month. This report has to be submitted on or before 15
th
of the next
month.
? The premium on each transaction is charged according to the terms of payment of the
transaction.
? The advance premium is adjusted from the monthly premium. The exporter must pay the
premium in advance. There must be a minimum of Rs. 10,000 in the exporter’s advance
premium at any given point of time. The advance premium is either reimbursed after the
end of policy period or carried forwarded if the policy continues.
ROLE OF ECGC IN EXPORT
Export Credit Guarantee Corporation (ECGC) of India Limited, set up by the Govt. of India in
1957, strengthens the export promotion drive by covering the risk of exporting on credit.
Being essentially an export promotion organization, it functions under the administrative control
of the Ministry of Commerce & Industry, Department of Commerce, Government of India. It is
managed by a Board of Directors comprising representatives of the Government, Reserve Bank
of India, banking, insurance and exporting community.
ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The
present paid-up capital of the company is Rs.800 crores and authorized capital Rs.1000 crores.
The types of insurance protection provided by ECGC include:
? a range of credit risk insurance covers to exporters against loss in export of goods and
services
? guarantees to banks and financial institutions to enable exporters to obtain better facilities
from them
? Overseas Investment Insurance to Indian companies investing in joint ventures abroad in
the form of equity or loan.
What does ECGC do?
? Offers insurance protection to exporters against payment risks
? Provides guidance in export-related activities
? Makes available information on different countries with its own credit ratings
? Makes it easy to obtain export finance from banks/financial institutions
? Assists exporters in recovering bad debts
? Provides information on credit-worthiness of overseas buyers
? Provides names and addresses of prospective buyers in the overseas markets
? Provides a range of credit risk insurance covers to exporters against loss in export of
goods and services.
? Offers Export Credit Insurance for Bankers and financial institutions to enable exporters
to obtain better facilities from them.
? Provides Overseas Investment Insurance to Indian companies investing in joint ventures
abroad in the form of equity or loan.
Need for Export Credit Insurance
Payments for exports are open to risks even at the best of times. The risks have assumed large
proportions today due to the far-reaching political and economic changes that are sweeping the
world. An outbreak of war or civil war may block or delay payment for goods exported. A coup
or an insurrection may also bring about the same result. Economic difficulties or balance of
payment problems may lead a country to impose restrictions on either import of certain goods or
on transfer of payments for goods imported. In addition, the exporters have to face commercial
risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer
going bankrupt or losing his capacity to pay are aggravated due to the political and economic
uncertainties. Export credit insurance is designed to protect exporters from the consequences of
the payment risks, both political and commercial, and to enable them to expand their overseas
business without fear of loss.
Cooperation agreement with MIGA (Multilateral Investment Guarantee Agency) an arm of
World Bank. MIGA provides:
1. Political insurance for foreign investment in developing countries.
2. Technical assistance to improve investment climate.
3. Dispute mediation service.
Under this agreement protection is available against political and economic risks such as transfer
restriction, expropriation, war, terrorism and civil disturbances etc...
Major Products and Services offered by ECGC include:
? Credit Insurance Policies o SCR or Standard Policy
? Turnover Policy o Small Exporters Policy
? Buyer-wise Policy
? Specific Shipment Policy (Short Term)
? Specific Policy for Supply Contract
? Insurance Cover for Buyer’s Credit and Line of Credit
? Service Policy
? Construction Works Policy
? Maturity Factoring
? Guarantees to Banks o Packing Credit Guarantee
? Export Production Finance Guarantee
? Post-Shipment Guarantee
? Export Finance Guarantee
? Export Performance Guarantee
? Export Finance (Overseas Lending) Guarantee
? Special Schemes
? Transfer Guarantee
? Overseas Investment Insurance
? Exchange Fluctuations Risk Cover
Board Of Directors
Chairman cum Managing Director
Shri N Shankar
Chairman cum Managing Director
ECGC of India Limited,Mumbai
Directors - Government of India
Shri Arvind Mehta
Joint Secretary
Department of Commerce
Ministry of Commerce & Industry,
Govt. of India,
New Delhi
Shri P. K. Mishra
Joint Secretary
Department of Economic Affairs,
Ministry of Finance,
Govt. of India,
New Delhi
ORGANISATION STRUCTURE
Code of Ethics
PRELIMINARY
This code shall be called the Code of Ethics and Business Conduct for ECGC Employees. It
shall be applicable to all employees of ECGC.
This Code supplements the various laws and regulations applicable to ECGC, as also its
internal policies, guidelines and CDA (Conduct, Discipline and Appeal) Rules, compliance
with which is mandatory and violations punishable as prescribed.
ETHICAL CONDUCT - GENERAL EXPECTATIONS
This code is a set of guidelines for ethical corporate and individual behavior in conduct of
business and discharge of duties.
The underlying values, principles and norms for such ethical conduct include, Among others,
honesty, integrity, professionalism, fairness, accountability, credibility, diligence, respect for
others, a sense of responsibility to the job, loyalty to the Corporation, primacy of Corporation's
interests over personal interests, respect for the law, staying above the temptation to utilize
official position or knowledge for Personal gain, and a strong personal sense of right and
wrong.
WORKPLACE RESPONSIBILITY
In addition to adhering to the basic values and principles underlying ethical behavior,
employees should also strive to abide by the principles of respect for all persons including
those juniors/subordinate to them or who are less advantaged;
respect for individual dignity and rights; non-discrimination on the grounds of race, ethnicity,
caste, marital status or gender; and maintaining a work environment free of sexual harassment
or exploitation.
It is incumbent upon the employees of ECGC to treat all those who deal with them with
courtesy and respond to their queries or legitimate requests positively and on a timely basis.
Any misuse of one's position as ECGC employee to seek or accept any gratification for doing
what is a part of the employee's duty is clearly illegal and unethical and must be punished by
the company appropriately. The same must also apply to any employee offering any
gratification to anyone, or bringing extraneous pressure, for seeking any undue favor.
It is the responsibility of every employee to bring to the notice of appropriate authorities any
violation of rules, regulations or codes of conduct, which they should do in a manner as may be
prescribed by the company. However, it is also important that this facility is not misused to
wrongfully harm someone and such misuse must also be punished by the company
appropriately.
Every employee should ensure at all times the integrity of the data/information furnished by
him/her to the company or to the auditors/regulators/authorities.
FAMILIARISATION WITH RELEVANT LAWS, REGULATIONS, POLICIES,
RULES ETC AND REGULATORY COMPLIANCE
It is expected that all employees would study and familiarize themselves with laws, regulations
and guidelines/standards issued by regulators that are relevant to their work and ensure that
they are complied with where they are responsible for doing so on behalf of the company
or/and in their personal capacity.
They should also be familiar with the policies; rules etc. of the company, and follow them as a
matter of course.
They should discharge their duties in this regard in a truthful, accurate, diligent and timely
manner.
PROTECTING ASSETS OF THE COMPANY
It is the responsibility of all employees to ensure that all the assets of the company, tangible
(such as machinery, equipment, systems, facilities, computers, vehicles, materials etc) as
also intangible (such as information and communications systems and technology, proprietary
information, relationships, brand equity and intellectual property etc) must be used in the
interest of the company, for the conduct of business and the purpose for which they have been
provided and to prevent any misuse or misappropriation for personal or unauthorized use.
CONFLICT OF INTEREST
Every employee must act in the best interest of the company and ensure that any business or
personal association which he/she may have does not involve a conflict of interest with the
operations of the company and his/her role therein.
A conflict of interest, actual or potential, may arise where, directly or indirectly an employee,
(i) Is unable to exercise an independent and unbiased judgment of the best interests of the
company in view of his/her personal interest, or that of close relatives/associates, being
involved or could be perceived to be involved;
(ii)Knowingly engages in a business relationship or activity with anyone who is a party to a
transaction with the company;
Is in a position to derive an improper benefit, personally or to any or his/her
relatives/associates, by making or influencing decisions relating to any transaction;
In situation where some historic conflict of interest exists, or where an inadvertent conflict or
potential conflict comes to the notice of the employee, it must be reported immediately to the
superiors.
In situations of doubt about the likelihood of a conflict/potential conflict of interest,
The employee must disclose the matter to the superiors and seek clearance /directions.
CONFIDENTIALITY OF CORPORATION RELATED INFORMATION
Subject to the Code of Corporate Disclosure Practices or any other relevant
policy/instructions on disclosures to outside parties that may be prescribed in the company,
information regarding the business should be treated as confidential and should not be shared
with anyone within and outside the company, formally or informally, unless authorized to do
so, and only to those authorized to receive it, with suitable safeguards as feasible, to prevent
misuse of the information. Information and data relating to, but not limited to, areas like
financial performance and results, asset revaluations, investment plans/decisions, business
strategies, marketing plans, sales or contracts, customer lists and details, proprietary, pricing
or costing data etc should be treated as confidential and not disclosed without proper
authorization, while the employee is in service and even subsequently.
In situations where the performance of a specific job inherently requires sharing of
information, including that of otherwise confidential nature (for example with auditors, board
committees, regulators etc.) or where certain information needs to be provided under the law,
regulations or in the course of any official enquiry/query, or in similar situations, appropriate
authorization should be obtained.
Even in situations where some information relating to the business may be in public domain, its
disclosure or elaboration should be done only by specifically authorized persons and within the
bounds of the policies and guidelines.
The confidentiality of information pertaining to other entities with which the company has
business dealings should also be equally respected and protected.
PROHIBITION OF USE OF COMPANY RELATED INFORMATION FOR
PERSONAL GAIN
No employee or his immediate family/close associates should derive, or assist anyone else to
derive, any benefit from access to information about the company, or those with whom it does
business, that is not in public domain, and therefore constitutes unpublished and price
sensitive insider information not available to the investing public.
No employee should use or share such information for making or giving advice on making
investment decisions about the securities of the company or of such entities with which it does
business.
The existing laws and regulations on prevention of insider trading should be
followed scrupulously by all employees of the company.
USE OF POSITION IN COMPANY FOR PERSONAL PURPOSES
The employee should not use his official position in the company to obtain any support for
activities in which he/she may be involved in a personal capacity, including those of a non-
commercial nature, e.g. cultural, literary, charity etc., from anyone with whom the company
has business dealings; nor should he/she use of official position, time or resources to pursue
such activities, even if these may be desirable activities per se.
The employee should not seek or accept, directly or indirectly, any gift, donation or
comparable benefits from anyone having business dealing with the company, except as
prescribed under the policy or rules of the company.
CONCURRENT DIRECTORSHIP OR EMPLOYMENT
No employee should accept any directorship or any employment, assignment or position of
responsibility, including consultancy or freelance work irrespective of whether it is with or
without remuneration, in any other company organization without specific approval.
SOCIAL AND ENVIRONMENTAL RESPONSIBILITY
The ECGC is specially committed to issues that go beyond the financial performance of the
company, such as those relating to corporate citizenship, health, safety, education, social,
justice, gender, climate change, and environmental sustainability, to name some. Their
operations and business conduct should, to the extent feasible, benefit the localities and
communities in which they operate, and must not be detrimental to them or to the local
environment.
The employees are responsible not just for carrying out the policies of the company in this
context as a part of their duties, but should also integrate these concerns in their working,
and contribute pro-actively in ensuring that the company operates as a good and responsible
corporate citizen. Where the company operates in different geographies, the company and also
its employees should respect the culture, customs and traditions of each country and region.
Objectives of ECGC
The Corporation has set before itself the following objectives:
1. To encourage and facilitate globalization of India’s trade.
2. To assist Indian exporters in managing their credit risks by providing timely information on
worthiness of the buyers, bankers and the countries.
3. To protect the Indian exporters against unforeseen losses, which may arise due to failure of the
buyer, bank or problems faced by the country of the buyer by providing cost effective credit
insurance covers in the form of Policy, Factoring and Investment Insurance Services comparable
to similar covers available to exporters in other countries.
4. To facilitate availability of adequate bank finance to the Indian exporters by providing surety
insurance covers for bankers at competitive rates.
5. To achieve improved performance in terms of profitability, financial and operational
efficiency indicators and achieve optimum return on investment.
6. To develop world class expertise in credit insurance among employees and ensure continuous
innovation and achieve the highest customer satisfaction by delivering top quality service.
7. To educate the customers by continuous publicity and effective marketing
How does ECGC help exporters?
? Offers insurance protection to exporters against payment risks
? Provides guidance in export-related activities
? Makes available information on different countries with its own credit ratings
? Makes it easy to obtain export finance from banks/financial institutions
? Assists exporters in recovering bad debts
? Provides information on credit-worthiness of overseas buyers
Notable Records of ECGC
? Largest Policy – short term Rs.450 crores
? Largest database on buyers 8 lakhs
? Largest credit limit Rs.80 Crores
? Largest claim paid Rs.120 crores
? Quickest claim paid 2 days
? Highest compensation-Iraq Rs 788 Crores
? On 31.3.2012 ECGC has achieved a magical milestone of Rs.1000 Crores of premium
income......well deserved achievement by the efforts put in by all the officers of the
Corporation. Thanks are due to the parent ministry officials, Export Customers and all
Nationalized and other private Banks.....
ECGC now offers various products for the exporters and bankers. If readymade products are
NOT suited to an exporter/banker then ECGC designs tailor made products.
Objective of the Study
The main objectives of the study are:
1- To analyze the working process of ECGC.
2- To analyze the performance of ECGC.
Scope of the study
In the light of growing need & importance of exports of our country it is of utmost importance
that everyone should have an insight in the field of exports.
In the course of last decade, the export scenario in India has undergone a tremendous change.
The liberalization initiated by the government, the keen competition in the market place & the
rapid increase in the export of services have all combined to change the picture completely. This
project will be covering aspects of export insurance available for exporters and export insurance
available for banks. Areas covered in this project are related to ?export insurance? and it almost
took 2 months in the compilation of this dissertation. I hope that this dissertation would provide
one, some essential information that will be useful to them in future.
Research Methodology
Research shall rely on secondary data collected from various sources the requisite
information and data will be collected from ECGC Sites. The other statistical data and
information will be collected from the ECGC Annual Reports, Various Journal of the
Export Marketing , Annual Report of Bank etc. (if required) information and data
collected from the above mentioned sources will be classified, tabulated and analyzed
according to the objective of the study. Statistical tools like percentage, ratio, and trend
analysis will be utilized to analyze the data of Performance of ECGC, EPG, and CSR
performance of ECGC.
CHAPTER – 2
THE WORKING PROCESS OF EXPORT GUARANTEE CORPORATION
OF INDIA
Export Credit Guarantee Corporation of India Limited (ECGC)
Export Credit Guarantee Corporation of India Ltd. ( ECGC ) is a Government of India Enterprise
which provides export credit insurance facilities to exporters and banks in India. It functions
under the administrative control of Ministry of Commerce & Industry, and is managed by a
Board of Directors comprising representatives of the Government, Reserve Bank of India,
banking, insurance and exporting community. Over the years, it has evolved various export
credit risk insurance products to suit the requirements of Indian exporters and commercial banks.
ECGC is the seventh largest credit insurer of the world in terms of coverage of national exports.
The present paid up capital of the Company is Rs. 1000 Crores and the authorized capital is Rs.
1000 Crores.
Functions of ECGC
? Provides a range of credit risk insurance covers to exporters against loss in export of
goods and services,
? Offers guarantees to banks and financial institutions to enable exporters obtain better
facilities from them,
? Provides Overseas Investment Insurance to Indian companies investing in joint ventures
abroad in the form of equity or loan.
ECGC Provides
? offers insurance protection to exporters against payment risks
? provides guidance in export-related activities
? makes available information on different countries with its own credit ratings
? makes it easy to obtain export finance from banks/financial institutions
? assists exporters in recovering bad debts
? information on credit-worthiness of overseas buyers
The covers issued by ECGC can be divided broadly into four groups:
1. Standard Policy Shipments (Comprehensive Risks) Policy, which is commonly known
as the Standard Policy, is the one ideally suited to cover risks in respect of goods exported on
short term credit; i.e. credit not exceeding 180 days. The policy covers both commercial and
political risks from the date of shipment.
2. Other Specific Policies Specific Policies are designed to protect Indian firms against
payment risks involved in a) exports on deferred terms of payment b) services rendered to
foreign parties and c) construction works and turnkey Projects undertaken abroad. These policies
are issued separately for each specific contract, and cover risks normally from the date of
contract.
ECGC provides for an insurance cover named as Construction Works Policy to provide cover
to an Indian contractor who executes a civil construction job abroad.
3. Financial Guarantees Financial Guarantees are issued to banks in India to protect them from
risks of loss involved in their extending financial support at pre-shipment and post-shipment
stages. These also cover a host of non-fund based facilities that are extended to exporters.
Export Performance Guarantee Export Performance Guarantee is an insurance cover for
banks, which issues various kinds of guarantees on behalf of exporters in order to facilitate
export transactions.
4. Special Schemes Transfer Guarantee meant to protect banks which add confirmation to
Letters of Credit opened by foreign banks, Insurance cover for Buyers Credit and Lines of
Credit, and Exchange Fluctuation Risk Insurance.
ECGC Whole Turnover Post-shipment(ECGC-WTPS) Guarantee Scheme
The Whole Turnover Post-shipment Guarantee Scheme of the Export Credit Guarantee
Corporation Ltd. (ECGC) provides protection to banks against non-payment of post-shipment
credit by exporters. Banks may, in the interest of export promotion, consider opting for the
Whole Turnover Post-shipment Policy. The salient features of the scheme may be obtained from
ECGC.
As the post-shipment guarantee is mainly intended to benefit the banks, the cost of premium in
respect of the Whole Turnover Post-shipment Guarantee taken out by banks may be absorbed by
the banks and not passed on to the exporters.
Where the risks are covered by the ECGC, banks should not slacken their efforts towards
realization of their dues against long outstanding export bills.
Overseas Investment Insurance
ECGC has evolved a scheme to provide protection for Indian investments abroad. Any
investments made by way of equity capital or untied loan for the purpose of setting up or
expansion of overseas Projects will be eligible for cover under investment insurance.
The investments may be either in cash or in the form of export of Indian capital goods and
services. The cover will be available for the original investment together with annual dividends
or interest receivable.
The risks of war, expropriation and restriction on remittances are covered under the schemes. As
the investor would be having a hand in the management of the joint venture, no cover for
commercial risks would be provided under the scheme. For investment in any country to qualify
for investment insurance, there should preferably be a bilateral agreement protecting investment
of one country in the other. ECGC may consider providing cover in the absence of any such
agreement provided it is satisfied that the general laws of the country afford adequate protection
to the investments.
The period of insurance cover would not normally exceed 15 years. In case of Projects involving
long construction periods, cover may be extended for a period of 15 years from the date of
completion of the Project subject to a maximum of 20 years from the date of commencement of
the investment. Amounts insured shall be reduced progressively in the last five years of the
insurance period.
ECGC's SCHEMES FOR PROJECT EXPORTS
Export of capital goods on deferred payment terms and execution of turnkey Projects,
construction works contracts as also rendering of services abroad are collectively referred to as
Project exports. As these transaction are not of repetitive nature and they involve medium / long
terms credit, ECGC's insurance cover for such transactions are provided on a case to case basis
under Specific Policies. Normally these contracts are of very high value and involve longer
credit period. The country / political risks involved in such transactions are unpredictable in view
of long credit period involved. Although in' most cases the overseas buyers are the government
or semi government organizations, there is a need for ECGC cover to safeguard the payment
risks. In many cases these contracts are funded by International Financial Institutions and
payments are secured under UC or bank guarantee. There are cases where even government or
central bank guarantees are available safeguarding payments. However, the elements of political
risk such as war, civil disturbances, exchange transfer delay etc. are existent in all these cases
despite having payment security as stated above. In order to protect such exporters ECGC has the
following types of covers.
1. For covering supply contracts and Turnkey Projects Specific Contract / Shipments Policy can
be taken. This Policy can be for covering only political risks or for covering comprehensive risks
i.e. both commercial and political risks.
2. For covering construction contract, a Construction Works policy can be obtained. This policy
can be for either Political Risks alone or for Comprehensive Risks. The Comprehensive Risks
Policy provides protection against commercial risks such as Insolvency of Buyer, protracted
default, non-acceptance of goods shipped in addition to covering political risk of war, civil war,
exchange transfer delay etc. The political risk policy on the other hand provides protection
against political risk policy.
3. For covering services contract, which involves only technical and / or professional services, a
Services Policy can be obtained. This also can be either for political or comprehensive risks.
In addition to the policy covers, which are issued to exporters, ECGC also extends its guarantee
support to banks in India against both funded and non funded facilities extended to Project
Exporters. The types of guarantees issued by Indian bank are:
1] Funded:
[a] Packing Credit
Post Shipment
[c] Overdraft
[d] Rupee Loan
2] Non - Funded
[a] Bid Bond
Advance payment
[c] Performance guarantee
[d] Retention Money guarantee
[e] Overseas Lending Finance guarantee
ECGC's counter guarantee can be obtained by banks in India to protect them against any loss
that they may sustain owing to invocation of the above guarantees.
Risk Covered : insolvency of the exporter/ protracted default of the exporter
Percentage of Loss : 75% TO 90% Covered
Rate of Premium : 0.80 Paise per Rs.100/- p.a. & 0.95 paise per Rs.100% p. a.
As per RBI's recent directive, no pre-bid approval from authorized dealer, EXIM Bank or
Working Group is required to be taken by Project exporters. Only post-award approval is
required to be taken. However, it would be in the interest of Project exporters to obtain 'In -
Principle' clearance from their bankers and ECGC assuring them of support in the event of their
securing the contracts.
ECGC's approval of Project exports and services contracts is based on the following
aspects:-
(i) The capacity of the Project exporter to carry out large value contracts - technical, professional
and managerial, and their past experience in the line of business.
(ii) Country to which the exports are to be made - stability of political set-up / government,
soundness of economy, payment records, relations with IMF, World Bank & other International
Financial Institutions & Donor countries.
(iii) Overseas contract / Project - value, type of Project, whether cleared by local authorities,
profitability.
(iv) Buyer / employer - private / government.
(v) Payment terms & security, rate of interest for deferred receivables.
(vi) ECGC's underwriting policy on the country and its experience, whether any transfer delay
experienced.
(vii) Berne union experience - whether the credit period offered is in line with Berne union
understanding.
(viii) Reinsurance back-up available or not.
(ix) Whether need for covering the contract under National Export Insurance Account set-up by
Government of India.
Buyer's Credit / Line of Credit cover:
Financial institution in India extend Buyer's Credit / Lines of Credit to overseas buyers /
institutions to facilitate export of goods & services from India. Institutions like Exim Bank,
SIDBI etc. often seek ECGC for Buyers Credit / Line of Credit cover. Buyers Credit / Line of
Credit cover can be obtained either for covering political risks or for comprehensive risks.
Factors weighing approval of Buyers Credit proposals are:
a) Competence and capacity of exporter in executing the contract.
b) Commercial justification of the contract.
c) Economic viability of the overseas Project for which credit is required to be offered.
d) Credit worthiness, standing and financial position of foreign buyers and general economic
conditions of the Buyers country.
Lines of Credit are generally extended by Exim Bank of India to Financial
Institutions/Governments in Overseas Countries facilitating export of consumer goods and
capital goods.
Overseas Investment Insurance (OII) cover:
OII provides cover for the investments made by Indian corporate abroad in Joint Venture or their
wholly owned subsidiary (WOS) either in the form of equity or loan. Government of India or
RBI should approve the Joint Venture. The basic principle is that the investment should emanate
from India and benefit of dividend / interest there from should accrue to India. The investment
should not in any way conflict with the policy of both our government and the overseas
government. Normally, there should be a bilateral agreement between India and the host country
for promotion and protection of Indian Investment. In case there is no such agreement the
Corporation should be satisfied that the existing laws of the host country adequately safeguard
Indian Investment.
Exchange Fluctuation Risk Cover
The Exchange Fluctuation Risk Cover is intended to provide a measure of protection to exporters
of capital goods, civil engineering contractors and consultants who have often to receive
payments over a period of years for their exports, construction works or services. Where such
payments are to be received in foreign currency, they are open to exchange fluctuation risk as the
forward exchange market does not provide cover for such deferred payments.
What are the terms of the Exchange Fluctuation Risk Cover?
Exchange Fluctuation Risk Cover is available for payments scheduled over a period of 12
months or more, up to a maximum of 15 years. Cover can be obtained from the date of bidding
right up to the final installment. At the stage of bidding, an exporter/contractor can obtain
Exchange Fluctuation Risk (Bid) Cover. The basis for cover will be a reference rate agreed upon.
The reference rate can be the rate prevailing on the date of bid or rate approximating it. The
cover will be provided initially for a period of twelve months and can be extended if necessary.
If the bid is successful, the exporter/contractor is required to obtain Exchange Fluctuation
(Contract) cover for all payments due under the contract. The reference rate for the contract
cover will be either the reference rate used for the Bid Cover or the rate prevailing on the date of
contract, at the option of the exporter/contractor. If the bid is unsuccessful 75 percent of the
premium paid by the exporter/contractor is refunded to him.
Types of Investment:
The overseas investment may be made either by way of equity or by way of loans
Equity
Any contribution made to the enterprise in return for shares either by cash remittances or by way
of export of capital goods or services can be covered. Any fees payable towards technical know-
how, consultancy or management services etc. and agreed to be converted into capital will be
considered for cover at the discretion of the Corporation.
Loans:
Loans advanced by way of a formal agreement but not tied to export of goods and supplies are
eligible for cover. Any 'suppliers / buyers' credits and lines of credit extended to support sale of
goods or services from India may be covered under the appropriate insurance schemes of the
Corporation and not under investment insurance.
Dividend and Profit
In case of equity the investor can choose to cover the original investment as well as his share of
retained earnings and dividends declared, to the extent they are eligible for repatriation. Cover on
account of original investment, retained earnings, dividend receivable and any additional
investment will be subject a ceiling of 150% of the original investment calculated as in the
proceeding paragraphs. In case of loan, the insurance will cover the principal as well as interest
actually earned.
Portfolio Investment:
Any investment in shares of overseas concerns not related to setting up, development and
expansion of overseas Projects will not be eligible for cover under the investment insurance.
Additional Investment:
Additional investment can be covered subject to a ceiling of 50% of the original investment. Any
additional investment out of retained earnings should have been made by formal capitalization
and for the purpose of expansion for development of the enterprise. If the additional investment
is made out of retained profits, which are not eligible for repatriation such as investment will not
be eligible for cover. Initially cover is issued for 3 years. On expiry of the 3 years it is at the
option of the exporter to renew the cover / review of the JV / WOS by ECGC. The duration of
insurance cover shall not normally exceed 15 year but extension can be given upto 20 years for
longer Projects. The amount of investment eligible for cover shall be to the full extent during the
first 10 years of cover. Percentage of cover is 90 - can be reduced. The amount of investment
eligible for cover will be reduced to 90%, 80%, 70%, 60% and 50% respectively of the original
investment during the 111", 121", 13
th
, 14t
h
and 15
th
years of insurance. OII provides cover for
original investment retained earnings, dividend receivables and additional investment upto 50%
of the original investment. Cover for dividend receivables may not be given in case of risky
countries; cover only for original investment. OII covers only political risks of war,
expropriation and restrictions on remittances.
Premium Rate
Base rate 2.5% of the investment value. Actual premium rate will be depending on size of
Investment, country of the investment, previous experience of the Importer etc.
The exporter has to furnish proposal form along with fee of Rs.01 % of the investment amount
subject to ceiling of Rs.25, 000/- if cover is agreed application fee paid shall be adjusted towards
premium payable. In case, the application for insurance is rejected, half the fee paid shall be
refunded. Premium is taken up front. Income from the premium is allocated over the tenor of the
cover extended. Installment facility is provided by ECGC for collecting premium after analyzing
and approving the proposal.
ECGC enters into agreement with the exporters for providing cover mentioning the terms and
conditions along with the maximum liability. The exporters have to submit annual report about
the progress and working of the Project.
NEW INITIATIVES
ECGC has since revised its premium structure providing substantial reduction in the rates both
for short term as well as for medium and long term contracts. This will go a long way in
providing cost effective credit insurance support to Project exporters which in turn will enable
them to compete effectively for international tenders.
In order to increase Project exports and to encourage Project exporters Govt. of India have
initiated various steps. Institutions like ECGC and Exim Bank are being strengthened to provide
adequate support to Project exporters. The National Export Insurance Account (NEIA) has been
set up by the Government of India to provide credit insurance support to exporters where ECGC
is not in a position to do so due to its own underwriting constraints and where the export is
strategically important in the long term interests of the country.
Construction Works Policy
Construction Works Policy is designed to provide cover to an Indian contractor who executes a
civil construction job abroad.
Two types of policies have been evolved to cover contracts with
Government Buyers and Private Buyers. The former covers political risks in respect of contracts
with Overseas Governments or where Government and the latter comprehensive risks guarantee
the payments. In case of contracts with private employers, the policy may be issued to cover
only political risks if the payments are guaranteed by a bank or covered by L/C.
The distinguishing features of a Construction Contract are that (a) the contractor keeps raising
bills periodically throughout the Contract period for the value of work done between one billing
period and another ; (b) to be eligible for payment, the bills have to be certified by a consultant
or supervisor engaged by the Employer for the purpose and (c) that, unlike bills of exchange
raised by suppliers of goods, the bill raised by the contractor do not represent conclusive
evidence of debt but are subject to payment in terms of the Contract which may provide, among
other things, for penalties or adjustments on various counts. The scope for disputes is very large.
Besides, the Contract value itself may only be an estimate of the work to be done, since the
Contract may provide for cost escalation, variation contracts, additional contracts, etc. It is,
therefore, important that the Contractor ensures that the Contract is well drafted to provide
clarity of the obligations of the two parties and for resolution of disputes that may arise in the
course of execution of the contract. Conditions of Contract (International) prepared by the
Federation International Des Ingenious Councils (FIDIC) jointly with the federation International
du Batiment et des Travaux Publics (FIBTP).
The Construction Works Policy of ECGC is designed to protect the Contractor from 85%
of the losses that may be sustained by him due to the following risks:
1. insolvency of the Employer (when he is a non — Government entity);
2. Failure of the Employer to pay the amounts that become payable to Contractor in terms of the
Contract, including any amount payable under an arbitration award;
3. Restrictions on transfer of payments from the Employer’s country to India after the Employer
has made the payments in local currency;
Failure of the Contractor to receive any sum due and payable under the Contract by reason of
war, civil war, rebellion etc;
5. The failure of the Contractor to receive any sum that is payable to him on termination or
frustration of the Contract if such failure is due to its having become impossible to ascertain the
amount or its due date because of war, civil war, rebellion etc;
6. Imposition of restrictions on import of goods or materials (not being the Contractor’s plant or
equipment) or cancellation of authority to import such goods or cancellation of export license in
India, for reasons beyond his control; and
7. Interruption or diversion of voyage outside India, resulting in his incurring in respect of goods
or materials exported from India, of additional handling, transport or insurance charges which
cannot be recovered from the Employer.
Risks not covered
The Construction Work Policy excludes from its purview losses which may be sustained due to
the following causes:
1. Failure of the Contractor and/ or the Employer (where the Employer is not a government) to
obtain, issue or deliver any authority necessary under the law of India or the Employer’s country
for execution of the Project and to make payment thereof;
2. Risks which can normally be insured with commercial insurers;
3. Insolvency, default or negligence of any agent, seller or sub-contractor;
4. execution of any works or incurring of any expenses by the Contractor after the Employer has
been in default in making any payment for a period of 120 days unless, on an application made
by the Contractor for the purpose within 90 days of such default, the corporation has agreed to
his continuing execution of the contract despite the said default of the Employer;
5. Execution of any works or incurring of any expenses by the Contractor after the estimated date
for completion of the contract unless, at the request of the Contractor, the Corporation has
agreed to a change in such date.
Premium
Premium rate will be dependent on the classification of the Employer’s country and the payment
terms and will be quoted by the Corporation on request. The rate will be applied on the
Estimated Contract value to arrive at the amount of premium payable to the Corporation and this
amount of premium is payable in advance. The Contractor is obliged to notify the Corporation if
the estimated contract value undergoes any change and the premium will be adjusted
accordingly.
Declaration
The Contractor is required to submit to the Corporation such periodical declarations as may be
prescribed by it relating to the execution of the contract and the position of payments there
under.
Ascertainment of Loss
When a loss arises due to any of the risks insured, the amount of loss shall be ascertained by the
Corporation, after the Contractor files a claim under the Policy, in accordance with the
provisions of clause 16 of the Policy. It should, however, be noted that, where the Contractor
has been simultaneously executing certain other contracts also for the same Employer, all
amounts paid by the Contractor shall be allocated to the amounts outstanding under all the
Contracts in the chronological order of the due dates of payment of those amounts, irrespective
of whether such other contracts have been insured by the Corporation or not.
Payment of Claim
If a claim is admitted under the Policy, the Corporation shall make payment of the amount direct
to the Contractor’s bank in India which may have a right or lien over the receivables under the
Contract. The payment shall be subject to the Contractor giving the Corporation an undertaking
to the effect that he will take all steps, including such steps as may be suggested by the
Corporation, to recover the dues from the Employer and to pass on the Corporation its share of
the amounts so recovered. The Contractor shall, if required to do so, support such an
undertaking with a bank guarantee for an amount equal to the amount of claim. The amount of
claim paid by the Corporation shall become refundable to the Corporation with interest if the
Contractor fails to take steps for effecting recovery.
Exchange rate for the purpose of Cover, Claim and Recovery
The liability of the Corporation under the Policy will be in terms of Indian Rupee. If the contract
value is expressed in a foreign currency, it shall be converted into Indian Rupees at the rate
specified in the Policy, the rate being approximately the same as the Bank Buying Rate of
Exchange on the date of contract, for the purpose of determining the amount covered and the
Maximum Liability of the Corporation under the Policy.
The same exchange rate shall be used by the Contractor for the purpose of submitting periodical
declarations to the Corporation. However, if the currency in which the Employer has to pay been
devalued before a claim is paid by the Corporation, the amount claimed by the Contractor in
Indian Rupees shall be based on the devalued rate. Recoveries will be reckoned, net of recovery
expenses at the actual rate at which the amounts recovered were converted by the receiving bank
into Rupees and such amounts shall be divided between the Corporation and the Contractor in
the same ratio in which the loss was originally borne by the two, irrespective of whether or not
such division results in the Corporation retaining an amount greater or lesser then the amount
paid by to as claim.
Note: The services offered by ECGC are in the nature of credit insurance products. It would be
necessary for the interested persons to consult ECGC for ascertaining specific terms of cover.
SPECIFIC POLICIES FOR SUPPLY CONTRACTS
The Standard Policy is a whole turnover policy designed to provide a continuing insurance for
the regular flow of an exporter's shipments for which credit period does not exceed 180 days.
Contracts for export of capital goods or turnkey Projects or construction works or rendering
services abroad are not of a repetitive nature and they involve medium/long-term credits. Such
transactions are, therefore, insured by ECGC on a case-to-case basis under specific policies.
All contracts for export on deferred payment terms and contracts for turnkey Projects and
construction works abroad require prior clearance of Authorized Dealers, EXIM Bank or the
Working Group in terms of powers delegated to them as per exchange control regulations
(Kindly refer to 'Projects Exports Manual' of Reserve Bank of India. For further details go to
http://www.rbi.org). Applications for the purpose are to be submitted to the Authorized Dealer
(the financing bank), which will forward applications beyond its delegated powers to the EXIM
Bank. Proposals for Specific Policy are to be made to ECGC after the contract has been cleared
by the Authorized Dealer, EXIM Bank or the Working Group, as the case may be.
The different policies are:
1. Specific Shipment (Comprehensive Risks) Policy;
2. Specific Shipments (Political Risks) Policy;
3. Specific Contract (Comprehensive Risks) Policy; and
4. Specific Contract (Political Risks) Policy.
Specific Shipments (Comprehensive Risks) Policy provides cover against all the risks covered
under the Standard Policy for shipments to be made under the contract in question (For details of
risks, click here). It is, therefore, the appropriate policy for an exporter to take if the payments
are open to both commercial and political risks. Where the Commercial risks are absent, e.g.
where the payments are guaranteed by a bank or by the Government of the overseas country, the
exporter may opt for the Specific Shipments (Political Risks) Policy for which the premium rate
will be lower than that for the Comprehensive Risks Policy.
Specific Contract Policy (which also can be for comprehensive or political risks) differs from
Shipments Policy in that the former provides the exporter not only with the post-shipment cover
like the latter but also with some pre-shipment cover from the date of contract. In case shipments
could not be made due to any of the risks covered or due to restriction on export of the goods
from India, the loss in respect of unshipped goods will also be covered under Contract Policies.
Premium rates for Contract Policies will be higher than that for Shipment Policies.
Terms of payment
To be eligible for cover under specific policies, the terms of payment for the export contracts
should be in line with customary practices in the international markets. At least, 15% of the
contract value should be payable before shipment including an advance payment of at least 5%.
The balance amount should be repayable in equal semi-annual installments commencing six
months after the date of shipment. Where the contract provides for supply and erection of a
complete plant, the first installment may fall due after six months from the date of
commissioning of the plant. The credit period should not normally exceed 5 years. Longer credit
period may be approved only in the case of exceptionally large Projects if the circumstances of
the case justify it. Adequate security should be obtained in the form of government or bank
guarantee.
Applicable premium rates
The premium rates will depend on the country to which exports are to be made and the
repayment period. To find out the premium payable for any particular contract, In order to be
sure about the availability of the cover, exporters are advised to get in-principle approval of
ECGC and obtain the premium rates well before concluding contracts. If the terms and
conditions of the contract undergo any change subsequently, ECGC should be informed of the
same, so that changes, if any, in the applicable premium rates can be ascertained.
When is the premium to be paid?
The entire premium is normally payable in advance. Installment facility may be granted for
payment of a part of the premium if the contract value is very large and if the shipments are
spread over a relatively long period, but the entire premium will have to be paid by the time the
last shipment is made. Interest will be charged for the installment facility.
Export Credit Insurance for Banks
The scheme of export financing by the Banks was introduced in 1967. The financial assistance
was provided by Banks to the exporters at two stages. The first was by way of Packing Credit
(PC) for working capital to purchase raw material, processing, packing and warehousing of
goods meant for export. The second stage namely, Post Shipment (PS) finance was provided by
the Banks against the shipping documents after liquidating the PC advances.
These advances to the exporters for PC and PS by the Banks had a risk of default and such a
default would add to the Non-Performing Assets (NPA) of the Banks. The whole turnover covers
offered by the Company protected the Banks against the default by the exporter who had availed
PC or PS credit. The Banks were to be reimbursed at different rates varying from 50 to 95 per
cent of the advances outstanding depending on the terms and conditions of the covers.
The Whole Turnover PC/PS (WTPC/WTPS) covers issued to the Banks automatically covered
all the advances given to the exporters except those with previous history of default. In other
words, the Banks got insurance cover for the advances extended to all the exporter/account
holders who were regular in servicing their debt. In case of any fresh default by such exporters,
the Banks got the money back from the Company. In effect, these defaults did not increase the
NPA of the Banks.
Under the capital adequacy framework (BASEL requirement), Banks were to provide a
minimum capital of 9 per cent on their risk weighted assets. However, the PC and PS advances
against which insurance cover was given by the Company to the Banks were treated as risk free
to the extent of 80 per cent. Thus, the Banks were required to meet the capital requirement for
the balance of 20 per cent of the outstanding dues, which translated to 1.80 per cent only.
The Company’s main ECIB business came from WTPC and WTPS as together they constituted
75-78 per cent of the total ECIB premium and 64-96 per cent of total ECIB claims during the
five years ending 31 March 2011.
Higher net claims affect the profitability of the Company adversely. During the last five years
period, the premium under WTPC was more than the net claims and hence WTPC generated
surplus. This would mean that the Company gained from the covers insuring
pre-shipment advances by the Banks. WTPS generated surplus only during 2006-07 to 2008-09.
However, due to a sudden surge in claims under WTPS, which cover post- shipment advances by
the Banks, it turned out to be loss making during 2009-10 and 2010-11. Also, while the
recovery9 under WTPC was 64.71 per cent of the claims, it was only 20.18 per cent of the claims
under WTPS.
Detailed scrutiny of these two products during the period 2008-09 to 2010-11 indicated that the
Company issued 108 WTPC covers to 36 Banks and 92 WTPS covers to 31 Banks (five Banks
did not avail WTPS covers). A review of 102 covers issued to 3410 Banks under WTPC and 86
covers issued to 29 Banks under WTPS showed that there was a profit of ` 665.78 crore under
WTPC and a loss of ` 191.72 crore under WTPS during the above period. An analysis of the
losses posted by the Company under WTPS during the three year period indicated that many of
the claims could have been avoided had the Banks observed due diligence and enforced the
compliance to their sanction conditions. The Company did not enforce observance of prudence
by Banks through enabling provisions in its covers and paid claims despite their adverse effects
on its finances as discussed in the ensuing paragraphs.
The Ministry in its reply (June 2012) stated that:
• Historically, the claim incidence was always under WTPC, the situation under WTPS was
adverse since 2008 onwards due to global meltdown. There were non- payments by buyers from
developed countries. The loss under WTPS for two years (2009-10 and 2010-11) was only a
temporary aberration due to global crisis and cannot be linked to any flaw in the scheme. •
various measures were taken to bring down the losses under WTPS like requirement of Banks to
take prior approval of the Company in cases of larger exposures under diamond sector,
restriction on limit exposures and percentage covers for iron ore sector and
• Claims were not admitted where Banks had substantially violated their own sanction terms and
conditions.
The reply of the Ministry was in contrast to the following facts:
• An analysis of the data on premium and claims paid during the nine year period 2002-03 to
2010-11 showed that WTPC had always produced surplus (overall ` 1369 crore) with high
recovery performance, while WTPS had sustained losses in five out of nine years (overall net
loss ` 192 crore). Thus, the risk in respect of WTPS was higher as compared to WTPC and
hence needed to be addressed.
• The steps taken by the Company to bring down the losses did not yield the desired effect in
2011-12 also. Out of 177 crore claim pay out in 2011-12 under WTPS, Gems and Jewellery
accounted for ` 163 crore (92 per cent). Another ` 50 crore was outstanding for payment in
2012-13.
2.2.1 Non-loading for adverse claim experience under WTPS
During the period 2008-09 to 2010-11, under WTPC coverage, the Claim Premium Ratio
(CPR)11 was above 200 per cent for 2 out of 34 Banks with a loss of ` 26.62 crore. Contrasting
this, under WTPS, CPR was more than 200 per cent in respect of 13 out of 29 Banks with a loss
of ` 309.27 crore,
There was a surge in claims during 2009-10 and 2010-11 signifying that the exposures taken by
the Company needed to be monitored. The CPR widely varied from Bank to Bank. In fact it
ranged from 973 per cent to (-) 126 per cent in 2008- 09 and from 1202 per cent13 to (-) 12 per
cent in 2009-10. Similarly in 2010-11, the CPR ranged from 1499 per cent to Nil per cent. The
premium in respect of WTPS cover was borne by the Banks and Company’s action to allow the
Banks very high claim ratio, without adequate loading in the premium, resulted in unintended
benefit to them.
It was observed that the Company, while renewing the covers, considered data on premium,
claim paid etc. relating to previous five years without any disincentive for bad performance for
any year and vice versa. This deflated the spikes in the CPR during the two years. In majority of
cases, it was seen that the average CPR for three years (2008-09 to 2010-11) was much higher
than the average CPR of five years (2006-07 to 2010-11). Thus, adoption of five years average
CPR did not have the pinching effect on the Banks to adopt prudent practices to bring down the
claim ratio.
In July 2010, one of the Directors suggested in the meeting of the Board that the Company could
consider differential premium rates for Banks on the basis of their respective CPR, if warranted.
Subsequently, the Company introduced (May 2011) a differential rate of premium, according to
which the premium rate ranging from 5.5 paise to 7.00 paise per ` 100 was to be charged under
WTPS depending upon the CPR.
However, it was observed that even this differential rate structure for WTPS was lower than that
of WTPC which ranged from 6 paise to 10 paise per ` 100. Further, there was no denial of
acceptance of risk for CPR beyond 400 per cent as was there in case of WTPC.
The Company stated (May 2012) that:
• adoption of five year claim ratio was to avoid an increased premium burden on the exporters in
WTPC and the same period was adopted for WTPS for uniformity; • in most of the G-11 and
other countries, the losses on account of export credit insurance were borne by the respective
governments through official Export Credit Agencies to sustain export of their countries and
hence spread of five years was considered logical.
GUARANTEES TO BANK
? EXPORT CREDIT INSURANCE PACKING CREDIT
1. ELIGIBILITY: A bank or a financial institution authorized to deal in foreign
exchange can obtain the Individual Packing Credit Cover for each of its exporter
clients who has been classified as a standard asset and whose CR is acceptable to
ECGC.
2. PERIOD OF COVER: 12 months
3. ELIGIBLE ADVANCES: All packing credit advances as per RBI
guidelines.
4. PROTECTION OFFERED: Against losses that may be incurred in
extending packing credit advances due to protracted default or insolvency of the
exporter-client.
5. PERCENTAGE OF COVER: 66-2/3%.
6. PREMIUM: 12 paise per Rs.100 p.m. on the highest amount outstanding on
any day during the month.
7. MAXIMUM LIABILITY: 66-2/3% of the Packing Credit Limit sanctioned
to the account being covered.
8. IMPORTANT OBLIGATIONS OF THE BANK: Monthly declaration
of advances granted and payment of premium before 10th of the succeeding
month. Approval of the Corporation for extension of due date beyond 360 days
from due date to be obtained. Default to be reported within 4 months from due
date or extended due date of advances, if not recovered, filing of claim within 6
months of the Report of Default. Recovery action after payment of claim and
sharing of recovery.
9. HIGHLIGHTS: Bank can take the cover selectively.
? EXPORT CREDIT INSURANCE-EXPORT PRODUCTION FINANCE
(ECIB-EPF)
1. ELIGIBILITY: Any bank or financial institution authorized to deal in foreign
exchange can obtain the Export Production Finance Cover for each of its exporter
clients who has been classified as a standard asset and whose CR is acceptable to
ECGC.
2. PERIOD OF COVER: 12 months.
3. ELIGIBLE ADVANCES: Advances granted at pre-shipment stage over and
above FOB value.
4. PROTECTION OFFERED: Against losses that may be incurred in
extending packing credit advances to the full extent of cost of production due to
protracted default or insolvency of the exporter-client.
5. PERCENTAGE OF COVER: 66-2/3%.
6. PREMIUM: 12 paise per Rs.100 p.m. on the highest amount outstanding on
any day during the month.
7. MAXIMUM LIABILITY: 66-2/3% of the Packing Credit Limit
sanctioned to the account being covered.
8. IMPORTANT OBLIGATIONS OF THE BANK: Monthly declaration
of advances granted and payment of premium before 10th of succeeding month.
Approval of the Corporation for extension of due date beyond 360 days from due
date to be obtained. Default to be reported within 4 months from due date or
extended due date of advances, if not recovered, filing of claim within 6 months
of the Report of Default. Recovery action taken after payment of claim followed
by sharing of recovery.
9. HIGHLIGHTS: Bank can take the cover selectively. Banks having ECIB-
WTPC are eligible for concessionary premium rate and higher percentage of
cover as applicable.
? EXPORT CREDIT INSURANCE-INDIVIDUAL POST -SHIPMENT
(ECIB -INPS)
1. ELIGIBILITY: Any bank or financial institution who is an authorized dealer in
foreign exchange can obtain the Individual Post-shipment Export Credit Cover in respect
of each of its exporter-clients who is holding the Standard Policy of ECGC WITHOUT
any exclusion.
2. PERIOD OF COVER: 12 months
3. ELIGIBLE ADVANCES: All post-shipment advances given through purchase,
negotiation or discount of export bills or advances against bills sent on collection.
4. PROTECTION OFFERED: Against losses that may be incurred in extending
post-shipment advances due to protracted default or insolvency of the exporter-client.
5. PERCENTAGE OF COVER: 75% for advances against bills drawn on buyers
other than associates and 60% for advances against bills drawn on associates.
6. PREMIUM: 6 paise per Rs. 100 p.m. payable on the highest amount outstanding on
any day during the month.
7. MAXIMUM LIABILITY: 75% of the Post-shipment Limits of the account.
8. IMPORTANT OBLIGATIONS OF THE BANK: Monthly declaration of
advances granted and payment of premium before 10th of succeeding month. Approval
of the Corporation for extension of due date beyond 180 days from due date to be
obtained. Default to be reported within 4 months from due date or extended due date of
advances, if not recovered, filing of claim within 6 months of the Report of Default.
Recovery action after payment of claim and sharing of recovery.
9. HIGHLIGHTS: Bank can take the cover selectively.
? EXPORT CREDIT INSURANCE-EXPORT FINANCE (ECIB-EF)
1. ELIGIBILITY: Any bank authorized to deal in foreign exchange can obtain the
Export Finance Cover in respect of its exporter-client who has been classified as a
standard asset and whose CR is acceptable to ECGC.
2. PERIOD OF COVER: 12 months.
3. ELIGIBLE ADVANCES: Advances against incentives such as cash assistance,
duty drawback, etc., receivable at post-shipment stage.
4. PROTECTION OFFERED: Against losses that may be incurred in extending
post-shipment advances against incentives due to protracted default or insolvency of the
exporter-client.
5. PERCENTAGE OF COVER: 75%.
6. PREMIUM: 6 paise per Rs.100 p.m. on the highest amount outstanding on any day
during the month.
7. MAXIMUM LIABILITY: 75% of the post-shipment limit sanctioned to the
account.
8. IMPORTANT OBLIGATIONS OF THE BANK: Monthly declaration of
advances granted and payment of premium before 10th of succeeding month. Approval
of the Corporation for extension of due date beyond 360 days from due date to be
obtained. Default to be reported within 4 months from due date or extended due date of
advances, if not recovered, filing of claim within 6 months of the Report of Default.
Recovery action after payment of claim and the subsequent sharing of recovery.
9. HIGHLIGHTS: Banks can take the cover selectively. Banks having ECIB-WTPS are
eligible for concessionary premium rate and higher percentage of cover as applicable.
? EXPORT CREDIT INSURANCE-EXPORT PERFORMANCE (ECIB-EP)
1. ELIGIBILITY: For banks holding ECGC Whole-turnover Packing Credit Cover
(ECIB-WTPC), cover under EP shall be considered for all their standard accounts
irrespective of credit ratings. In respect of other banks, it shall be only for standard
accounts with acceptable credit ratings.
2. PERIOD OF COVER: As per the period of the bank guarantee.
3. ELIGIBLE COVER: Bank guarantee issued in support of export obligations to
EPCs, CBs, STC, MMTC or recognized Export Houses, Bid Bond, Performance Bond,
Customs, Central Excise and Sales Tax Authorities, L/Cs opened for purchase/import of
raw materials in respect of export transactions.
4. PROTECTION OFFERED: Against losses that the bank may suffer on account of
bank guarantees given by it on behalf of exporters and due to protracted default or
insolvency of the exporter-client.
5. PERCENTAGE OF COVER: 75%
6. PREMIUM: 6.5 paise per Rs.100 p.m. on the Bank guarantee value and period.
7. MAXIMUM LIABILITY: 75% of the Cover value.
8. IMPORTANT OBLIGATIONS OF THE BANK: Premium is payable in
advance. Approval of the Corporation for any extension in the period of the bank
guarantee to be obtained. If the exporter fails to meet the payment as and when the
guarantee is invoked or when it falls due under L/C, necessary steps to be taken for
recoveries, including recall of advances and institution of legal proceedings. Default to
be reported within 4 months from due date or extended due date of advances, if not
recovered, filing of claim within 6 months of the Report of Default. Recovery action after
payment of claim and the subsequent sharing of recovery.
9. HIGHLIGHTS: Bank can take the cover selectively.
The Ministry in its reply stated (J une 2012) that:
• The Company’s intention was not to have any pinching effect on the Banks so that flow of
credit to export was not affected. It was for RBI to have a system of recognition of penalty to
reflect good and bad performance of Banks. • a spread of five years to arrive at the CPR was
considered logical and appropriate as steep increase in claims in any particular year would have a
milder impact. • WTPC covers carried a higher risk as compared to WTPS. The claim settlement
under WTPC had been invariably higher than WTPS for the last several years except for 2009-10
and 2010-11. • BOD did not suggest that the premium rates of the two covers be aligned but the
number of slabs under WTPS be aligned. • The percentage cover under WTPS was low as
compared to WTPC.
The replies are to be seen in the light of the fact that:
• The flow of credit was to be ensured by RBI and the Company’s role was limited only to
provide credit insurance to the Banks. It was not prudent on the part of the Company to bear the
burden of the bad performance of Banks in terms of credit management. • the adoption of five
year average was not in line with the practice followed by other General Insurers14, who were
normally adopting three year CPR. • The performance of the two products during the last nine
year period (2002-03 to 2010-11) showed that WTPC resulted in surplus of ` 1369 crore whereas
WTPS resulted in net loss of ` 192 crore during this period. Further, WTPC was profitable in
each of the nine year whereas WTPS sustained losses during five out of nine years. The recovery
performance under WTPC was also very high (46 per cent as against 18 for WTPS). Thus, the
Company was exposed to more risk under WTPS. Therefore, WTPS needed to be priced
appropriately.
Thus, there was a need for putting in place an effective system of incentives and disincentives
under WTPS for containing the adverse claim ratio.
It was observed that in some of the cases involving consortium arrangements, the Company
came to know of the same only at the time of filing of the Report of Default by the exporters.
Thus, in effect the Company, while underwriting the WTPS cover, did not assess the
concentration of risk to the extent that Company was not even aware of the existence of these
arrangements amongst Banks.
The Company in reply (March 2012) stated that the matter of co-ordination among various
consortium members, was to be dealt with by RBI16 and not by them.
The Ministry while endorsing (June 2012) the reply of the Company further stated that various
initiative have been taken by the Company to curb losses in the gem, jewellery and diamond
sector which had resulted in lower claim of ` 530 crore in 2011-12 as against ` 606 crore in 2010-
11. Moreover, it was stated that the Company had since introduced prudential norms for
exposures, linked to the net worth of ECGC.
The reply of the Company demonstrates that this serious threat to its financial condition due to
default by any one individual was not adequately evaluated and steps were not taken to mitigate
the probability of loss.
It was the responsibility of the Company to map all the risk exposures and provide for adequate
risk mitigation measures. Moreover, the risk exposure arising out of concentration of risk at
commodity, region or individual level cannot be mitigated unless the Company is aware of the
arrangements among the various Banks at the time of underwriting itself. Apart from the fact
that the claims of ` 530 crore were still very high, the reply of the Ministry was silent about the
high exposure level during the period.
2.2.3 Inadequacies in buyer verification
The WTPS covered all the account holders availing the credit facility from the Banks. Some of
the accounts holders could be policy holders (having short term policy with the Company). The
risk of default in respect of account holders, who were also policy holders, had already been
assessed and credit limit fixed by the Company. However, in respect of non-policyholders, the
Banks were required to take suitable safeguards like obtaining credit reports and satisfy that the
payments from the buyers were being received in the normal course.
In the earlier Performance Audit, the issue of inadequate verification of creditworthiness of
buyers was raised. The Ministry in Action Taken Note (ATN) of January 2011 stated that the
recommendation of audit to make verification of buyer credit worthiness mandatory for Banks
was implemented.
During the present audit, this issue was reviewed in detail and it was observed that 111 out of
135 WTPS claims paid by the Company during 2008-09 to 2010-11 pertained to non-
policyholders. In these cases, the Banks were responsible for verification. Audit scrutiny of 29
selected WTPS claims (all non-policy holders) amounting to ` 371 crore (69 per cent of ` 534
crore paid towards 135 claims.) indicated that out of 668 advances, the Bank branches had
disbursed 57417 advances to the exporters, without ensuring satisfactory buyer reports
Yet, advances were disbursed by the branches of Banks on the basis of outdated, post- dated,
unsatisfactory or nil buyer verification reports. Thus, there was lack of due diligence and non-
compliance with the stipulations made by the Company in the covering letter to the ECIB Bond
on the part of the Bank branches. No certificate regarding exercising of due diligence by the
Banks was ever insisted by the Company before payment of claims. Despite the laxity on the
part of the Bank branches, the Company paid claims of ` 316.13 crore23.
The Company in reply stated (March 2012) that:
• It was not practical to stipulate such conditions mandatory for all sectors as Banks followed
their own credit appraisal norms/standards;
• It had no intention of imposing the condition of obtaining overseas buyer reports in its cover
since the risk covered was default of the exporter and not the buyer;
• Based on adverse claim experience with regard to gems, jewellery and diamond sector,
obtaining satisfactory buyer reports was made mandatory for limit approvals from December
2009 onwards;
• There were umpteen instances where the Company disallowed many post shipment advances
on the ground of out-dated / post-dated / unsatisfactory reports.
During the Exit meeting in March 2012, the Management further elaborated that both the GOI
and RBI were taking a liberal view for extending credit to exporters, Banks were allowed to
advance even without firm order and Banks had to necessarily discount the bills presented by the
exporters even if the buyer verification showed inadequacies after the grant of packing credit
advances.
The Ministry in its reply further added (June 2012) that: • even if the buyer failed to repay, the
Banks had recourse on the exporter and it could not be concluded that the reason for non-
payment was on account of the buyer report being out-dated or un-satisfactory or post-dated.
Moreover, the entire account of the exporter-borrower was covered under ECIB and the claim
would be lodged only if the entire account became NPA.
• Subsequent to the audit recommendation for ensuring buyer verification, the Banks had
informed that they were governed by RBI norms and their internal sanction terms normally
stipulated conditions to the effect that they should obtain satisfactory credit reports on overseas
buyers who were not associates. Making ostentation of satisfactory report on the overseas buyer
mandatory for discounting the bills for all sectors might not be practical and the banks might opt
out of extending export finances, in the absence of covers from the Company.
• The Banks had to necessarily purchase the bills presented by the exporters, even if the buyer
verification showed inadequacies.
• The Company erred in accepting audit recommendation made in the Performance Audit Report
of 2008 regarding obtaining of satisfactory report on overseas buyer mandatory by banks for
extending ECIB Covers to banks.
However, it also stated that the Company would consider stipulating the condition relating to
buyer verification for specific sectors in future, if warranted by circumstances.
The replies have to be viewed in the light of the following:
• As per the Company’s manual, WTPS covered non-realization of export proceeds and resultant
insolvency/protracted default of the exporter. Thus the performance of the foreign buyer was not
delinked from the exporter and the risk basically rested on the financial position of the buyer.
• Though Banks were governed by the RBI norms, it is in the interest of the Company to have
enabling provisions in their cover to guard against unmitigated risk falling to their account.
Ensuring proper buyer verification by Banks would minimize the chances of default as well as
loss to the Company.
• The Ministry in its ATN (January 2011) had stated that the earlier audit recommendation on the
issue was implemented by the Company. However, the present endorsement of the Company’s
reply that they erred in accepting the recommendation showed weakness in governance. Further,
the Banks’ internal sanction terms did not distinguish an associate from non-associate in the
matter of buyer verifications.
• The Banks were under no obligation to discount the bills after knowing that the buyer report
was unsatisfactory.
• The action taken by the Company in December 2009 referred to issue of an internal circular to
its branch offices stipulating buyer verification for gem and jewellery advances, which was not
legally binding on the Banks. Further, the audit recommendation was for all the commodities.
• Out of 574 advances for ` 572.16 crore in the last three years, where audit observed default by
the exporters, the Company had disallowed only seven cases for ` 10.41 crore (1.82 per cent) on
grounds of buyer reports.
• IRDA had vide its onsite inspection report (October 2011) on ECGC inter-alia commented on
the unsatisfactory buyer reports.
Thus, the Company accepted the liability despite defective buyer reports rendering the system
susceptible to be used as a conduit for transferring the NPAs of Banks. This ultimately resulted
in the negative performance of the WTPS cover with a deficit of ` 187 crore during the three
years ending 31 March 2011.
Injudicious underwriting
In some export transactions, the foreign buyers make advance payment to the Indian exporters
for executing the contract and the same gets liquidated on satisfactory performance of the
contract. However, the buyers in these cases generally require that the advance payment be
guaranteed by Banks.
The Company through its Export Performance Advance Payment (EPAP) cover provided
counter guarantee to the Banks against the guarantees so issued
The Company was issuing these counter guarantees to the Banks relying on the assessment of
creditworthiness of exporter by Banks and there was no system of independent evaluation of the
exporter or their capacity to execute the contract.
The case relating to issuance of counter guarantees to the Banks in respect of M/s Zoom
Developers Limited is discussed below:
M/s Zoom Developers Limited a medium sized project development and IT Company was
involved in multi sector projects like process plants, chemical and petro chemical plants, steel
plants, auto components, rehabilitation of water supply pipelines etc. The Company issued 193
counter guarantees for a value of ` 2114 crore during 2003 to 2009 to a consortium of 24 Banks
led by Punjab National Bank in respect of the above exporter. These counter guarantees covered
the advance payments received by the exporter from its foreign buyers for executing projects in
different countries. However, 190 covers for ` 2066 crore were invoked (since March 2009
onwards) by the foreign buyers for non-completion of projects. Accordingly, the consortium of
Banks made (February 2010 to April 2011) claims and the net claim liability likely to devolve on
the Company worked out to ` 1047 crore. The Company after receipt of the claim, conducted
(September 2011) inspection of records at the Banks and found that the part money received as
advances initially, was sent back to the same entity who had given the advance. The inspection
also revealed that ` 15 crore was transferred (September 2006) to entities not connected with the
project. The Company rejected the claims of the Banks on the above ground. The matter was
also being investigated (2011) by CBI25 and a case was registered against the Director of M/s
Zoom Developers Limited and others.
Though the Company had rejected the claims during March 2011 to October 2011, yet, the
following omissions on the part of the Company in undertaking this risk required mention:
• The guarantee and counter guarantee was meant for a period of six months. However, in the
instant case, the Company extended the counter guarantees for more than five years and
simultaneously increased its exposure.
The Company in reply (March 2012) stated it had issued the covers in good faith based on
information provided by Banks in their proposal form. Further, it was stated that the claims had
been rejected on account of serious fraud committed by the exporter and non- monitoring the end
use of funds by the Banks in violation of RBI norms. The Company also stated that it had since
initiated stricter risk mitigation measures/prudential norms such as fixation of limits for each
exporter exposure, augmenting reinsurance covers, revisiting and strengthening ECIB/EP cover
documents etc. During the Exit meeting, the Company assured to review and take corrective
action to improve the form design of ECGC cover and also carry out verification of Bank’s
appraisal at the underwriting stage in respect of large EPAP covers.
The Ministry endorsed (June 2012) the reply of the Company regarding issuance of the cover
under good faith and rejection of claim on account of fraud committed by the exporter.
The fact remains that the Company did not have an appropriate system of making an independent
assessment of the risk while underwriting mega risks.
Non-issue of commodity specific covers for diamond exports
We observed that though the claim pay out in respect of gems and jewellery advances during
2008-09 to 2010-11 was maximum (` 432 crore out of total ` 534 crore), the decision of the BOD
to issue commodity specific cover with proper premium rate was pending since 2002. The CMD
had also observed (March 2011) the need for increase in premium rate for gems and jewellery
and Company’s corporate plan also provided for issue of such covers.
The Company in its reply (March 2012) stated that it was in discussion with Gem and Jewellery
Export Promotion Council for introduction of suitable commodity cover.
Fixing of Maximum Liability
The Company at the time of underwriting the covers for WTPC and WTPS was also fixing the
Maximum Liability (ML) separately for each of them. The ML signified the cap on the liability
on the part of the Company towards the Bank. As per the ECIB manual of the Company, the ML
was to be fixed for each Bank on the basis of aggregate advances (WTPC or WTPS advances)
outstanding as on 31 March before commencement of the cover (July to June). We observed, in
selected 33 covers of WTPC, where CPR was more than 70 per cent, the ML ranged from 9.55
per cent to 71.56 per cent of the aggregate outstanding advances. Similarly, in 33 covers of
WTPS, where CPR was more than 70 per cent, the ML ranged from 5.46 per cent to 169.49 per
cent. Thus, there was no uniformity in fixing the ML.
Further, the fixation of ML with reference to the aggregate of advances outstanding at the year-
end only without appropriate formulae was flawed. The Company needed to cap its liability by
assessing the risk for each Bank considering the factors like CPR, number of account holders,
number of policy holders, number of Non-Performing Account holders with amount of
outstanding from them etc.
The Company replied (March 2012) that it was in the process of formulating suitable
methodology for fixing maximum liability under WT covers.
The Ministry replied(June 2012) that for the year 2012-13, ML was being fixed by the Company
after taking into account three parameters viz. one third of total outstanding, 20-30 times of
premium anticipated or received in previous year, ML approved for Banks with comparable
business for the year 2012-13.
Advances for buyers in the defaulters list
In the event of default in payment by a buyer, the Company besides canceling the Overall Limit
(OL) sanctioned on that buyer puts the buyer's name in the defaulters list also. The defaulters list
was intended to caution other exporters on the financial condition of the buyer for appropriate
action.
It was seen in audit that during April 2008 to July 2009, 18 Bank branches gave 40 PS advances
amounting to ` 38.75 crore to ten exporters against four defaulted buyers, who had already been
placed in defaulters list during November 2006 to September 2007. Though this was in violation
of the due diligence clause of the ECIB cover granted to the Banks, yet the Company paid claims
of ` 23.40 crore in respect of these four buyers.
LIST OF COMPANIES WITH NEAGTIVE PREMIUM A/C
S.
NO.
COMPANY POLICY NO. PREMIUM
DUE
PERSON
CONTACTED
REMARKS
1 DELTA CLOTHING 0020008274 29,371.00 ---- REFERED TO
SEEMA
MADAM
2 UNITED EXPO 0020011634 3,316.00 Mr. KANTI
SHAH
WILL SEND
CHEQUE
SOON
3 RAN IMPLEX 0560000508 6,965.00 Mr. SAMIR
GHANDHI
NO
SHIPMENTS
4* G. JEWELCRAFT 0560000788 12,861.00 Mr. VINOD
GODHA
WILL SEND
CHEQUE
SOON
5 SUNDARAM
JEWELERRY
0560000391 8,390.00 Mr. PUSHPAK
DESAI
ASKED FOR
SENDING MAIL
REAGRDING
CALCULATION
OF PREMIUM
6* NAVSHILA
JEWELLERY PVT.
LTD.
0560000254 29,561.00 Mrs. LOPA WILL SEND
CHEQUE
SOON
7 NEOGEM (I) LTD. 0560000771 9,03,476.00 Mr. GOPAL
DHRUV
PROBLEM
WITH
CALCULATION
OF PREMIUM
8* EURO CREAMICS 0020011946 12,009.00 Mr. ANIL
PILLAI
WILL SEND
CHEQUE
SOON
9 MIDAS CARE
PHARMACUTICALS
0560000548 1,53,238.00 ---- ----
10 HEMLINES TEXTILE
EXPORT PVT. LTD.
0560000575 78,029.00 Mr. SAGAR WILL COME
AND MEET
PERSONALLY
11 FORMOKEM INDIA
CORPORATION
0560000686 7,699.00 Mr. DESAI ASKED TO
SEND AN E-
MAIL
12* PREMCO GLOBAL
LTD.
0560000209 27,697.00 Mr. KISHORE WILL SEND
CHEQUE
SOON
13 DIMPLEX JEWELS
PVT. LTD.
0560000364 2,805.00 Mr. VIRAL
MEHTA
ALREADY
DISPATCHED
THE CHEQUE
14 AZURE JOUEL
PVT.LTD.
0560000645 1,85,841.00 Mr. NIPUN
KOTHARI/ Mr.
PRASANNA
REFERED TO
SEEMA
MADAM
Staff accountability issues
Any loss to the Bank due to an act of omission and/or commission on the part of the Bank
officials was excluded from the cover given by the Company. Accordingly, at the time of claim
submission to the Company, Banks were required to give an explicit undertaking that either there
was no omission or commission on the part of their officials or an investigation was under
progress. The Banks undertook to refund the entire claim amount in the event of any official
found guilty of mollified, negligence or irregularity.
The above issue was raised in the earlier Performance Audit Report, wherein it was
recommended that the Company needed to institute a system for regular in-house consolidated
reporting and follow-up of claims involving accountability issues besides ascertaining its dues, if
any, arising out of such cases. The Ministry also accepted (January 2009) the above
recommendation and stated in ATN (January 2011) that the Company had implemented the
same.
The implementation of the above recommendation was reviewed during the present audit and it
was observed that the computerized system implemented for capturing the data regarding staff
accountability issues did not have any provision to capture the data regarding internal enquiry, if
any, in progress. Further, there was no provision in the system to consolidate the data at Head
Office level. As a result, the Company manually compiled the data with only number of cases
on the basis of information sent by its branch offices. Data regarding money value and age-
wise/investigating agency-wise analysis of the cases where enquiry was going on was also not
available with the Company.
It may be seen from the above table that 60 pending cases for ` 66.08 crore were between 5 to 10
years of age. The branch did not reply to an audit query regarding periodic follow-up of these
cases with the Banks.
Taking into account the above, the Company needed to address the deficiency in capturing the
data in the system for effective monitoring. The pending staff accountability cases also needed to
be closely monitored.
The Company stated (March 2012), that the format of undertaking was designed in consultation
with Indian Banks Association and the same would be reviewed and suitably modified, if
required.
The Ministry while endorsing (June 2012) the reply of Company regarding revision of format of
undertaking, further stated that the Company had advised its branches to vigorously follow up
the cases, obtain necessary information and to report the same to Head Office. It was further
informed that the Company was setting up a separate recovery cell at HO and follow up of staff
accountability would be a part of the work entrusted to the cell.
Recoveries of claims settled
After settlement of claims, branches of the Company were required to pursue the recoveries with
the Banks and branch-wise targets were also set in this regard. We observed that pending
recoveries had gone up from ` 2170 crore in 2008-09 to ` 2333 crore in 2009-10 and further to `
2628 crore in 2010-11. The actual recoveries made during these years also declined from `
151.29 crore in 2008-09 to ` 110.65 in 2010-11 which was indicative of inadequate recovery
efforts. The age-wise detail of the pending recoveries was not on record.
In reply, the Company stated (March 2012) that the recoveries being effected in ECIB were
considered reasonable in the light of the fact that the Banks were not insisting upon material
collaterals where ECIB covers were available. It also stated that the collateral securities obtained
by the Banks were meant for all facilities sanctioned to an exporter by the Bank and not
exclusively for the facilities under ECIB.
The Ministry stated (June 2012), that the Company was setting up a separate recovery cell to
consolidate recovery efforts of branches. It was further stated that the reduction in ratio of
recovery to outstanding amount was also due to not writing off very old cases and efforts would
be taken to improve the ratio.
Export Credit Insurance For Exporters in Short Term(ECIE-ST)
TURNOVER BASED
Shipments Comprehensive Risks Policy - (SCR)
Shipments (Comprehensive Risks) Policy, commonly known as the Standard Policy, is the one
ideally suited to cover risks in respect of goods exported on short-term credit, i.e. credit not
exceeding 180 days. This policy covers both commercial and political risks from the date of
shipment. It is issued to exporters whose anticipated export turnover for the next 12 months is
more than Rs.50 lacs. (The appropriate policy for exporters with an anticipated turnover of Rs.50
lacs or less is the Small Exporter's Policy, described separately).
The Risks cover under the policy:
Under the Standard Policy, ECGC covers, from the date of shipment, the following risks:
a.) Commercial Risks:
I. Risks covered under the overseas buyers:
? Insolvency of the buyer.
? Failure of the buyer to make the payment due within a specified period, normally four months
from the due date.
? Buyer's failure to accept the goods, subject to certain conditions.
II. Risks covered on the L/c opening bank:
? Insolvency of the L/c Opening bank.
? Failure of the L/C opening bank to make the payment due within a specified period normally
four months from the due date.
? Insolvency of the L/c Opening bank.
b.) Political Risks:
? Imposition of restriction by the Government of the buyer's country or any Government action,
which may block or delay the transfer of payment made by the buyer.
? War, civil war, revolution or civil disturbances in the buyer's country. New import restrictions
or cancellation of a valid import license in the buyer's country.
? Interruption or diversion of voyage outside India resulting in payment of additional freight or
insurance charges which cannot be recovered from the buyer.
? Any other cause of loss occurring outside India not normally insured by general insurers, and
beyond the control of both the exporter and the buyer.
Small Exporters Policy - (SEC)
The Small Exporter's Policy is basically the Standard Policy, incorporating certain improvements
in terms of cover, in order to encourage small exporters to obtain and operate the policy. It is
issued to exporters whose anticipated export turnover for the period of one year does not exceed
Rs.50 lacs. The nature of commercial risks and political risks cover is similar to that of the
Shipment Comprehensive Risk (SCR) or Standard policy.
The salient features of Small Exporters Policy:
Period of Policy:
Small Exporter's Policy is issued for a period of 12 months, as against 24 months in the case of
Standard Policy.
Minimum Premium:
Premium payable will be determined on the basis of projected exports on an annual basis subject
to a minimum premium of Rs. 2000/- for the policy period. No claim bonus in the premium rate
is granted every year at the rate of 5% (as against once in two years for Standard Policy at the
rate of 10%).
Declaration of Shipments:
Shipments need to be declared quarterly (instead of monthly as in the case of Standard Policy).
Declaration of overdue Payments:
Small exporters are required to submit monthly declarations of all payments remaining overdue
by more than 60 days from the due date, as against 30 days in the case of exporters holding the
Standard Policy.
Waiting Period for Claims:
The normal waiting period of 4 months under the Standard Policy has been halved in the case of
claims arising under the Small Exporter's Policy.
Change in terms of payment of extension in credit period:
In order to enable small exporters to deal with their buyers in a flexible manner, the following
facilities are allowed:
? A small exporter may, without prior approval of ECGC convert a D/P bill into DA bill,
provided that he has already obtained suitable credit limit on the buyer on D/A terms.
? Where the value of this bill is not more than Rs.3 lacs, conversion of D/P bill into D/A bill is
permitted even if credit limit on the buyer has been obtained on D/P terms only, but only one
claim can be considered during the policy period on account of losses arising from such
conversions.
A small exporter may, without the prior approval of ECGC extend the due date of payment of a
D/A bill provided that a credit limit on the buyer on D/A terms is in force at the time of such
extension.
Resale of unaccepted goods:
If, upon non-acceptance of goods by a buyer, the exporter sells the goods to an alternate buyer
without obtaining prior approval of ECGC even when the loss exceeds 25% of the gross invoice
value, ECGC may consider payment of claims up to an amount considered reasonable, provided
that ECGC is satisfied that the exporter did his best under the circumstances to minimize the
loss. In all other respects, the Small Exporter's Policy has the same features as the Standard
Policy.
Specific Shipment Policy - Short Term (SSP-ST)
Specific Shipment Policies - Short Term (SSP-ST) provide cover to Indian exporters against
commercial and political risks involved in export of goods on short-term credit not exceeding
180 days. Exporters can take cover under these policies for either a shipment or a few shipments
to a buyer under a contract. These policies can be availed of by
? exporters who do not hold SCR Policy and
? By exporters having SCR Policy, in respect of shipments permitted to be excluded from
the preview of the SCR Policy.
Different types of SSP (ST) :
? Specific Shipments (commercial and political risks) Policy - short-term.
? Specific Shipments (political risks) Policy - short-term.
? Specific Shipments (insolvency & default of L/C opening bank and political risks) Policy -
short-term.
The risks covered under the SSP Policy:
Under the Specific shipment Policies, ECGC covers from the date of shipment, the following
risks:
a.) Commercial Risks:
I. Risks covered on the overseas buyers:
? Insolvency of the buyer.
? Failure of the buyer to make the payment due within a specified period, normally four months
from the due date.
? Buyer's failure to accept the goods, subject to certain conditions.
II. Risks covered on the L/c opening Bank:
? Insolvency of the L/c Opening bank.
? Failure of the L/C opening bank to make the payment due within a specified period normally
four months from the due date.
a.) Political Risks:
? Imposition of restriction by the Government of the buyer's country or any Government action,
which may block or delay the transfer of payment made by the buyer.
? War, civil war, revolution or civil disturbances in the buyer's country. New import restrictions
or cancellation of a valid import license in the buyer's country.
? Interruption or diversion of voyage outside India resulting in payment of additional freight or
insurance charges which cannot be recovered from the buyer.
? Any other cause of loss occurring outside India not normally insured by general insurers, and
beyond the control of both the exporter and the buyer.
Services Policy - (SRC)
Where Indian companies conclude contracts with foreign principals for providing them with
technical or professional services, payments due under the contracts are open to risks similar to
those under supply contracts. In order to give a measure of protection to such exporters of
services, ECGC has introduced the Services Policy.
What are the different types of Services Policy and what protection do they offer?
? Specific Services Contract (Comprehensive Risks) Policy;
? Specific Services Contract (Political Risks) Policy;
? Whole-turnover Services (Comprehensive Risks) Policy; and
? Whole-turnover Services (Political Risks) Policy.
Specific Services Policy, as its name indicates, is issued to cover a single specified contract. It is
issued to provide cover for contracts, which are large in value and extend over a relatively long
period. Whole-turnover services policies are appropriate for exporters who provide services to a
set of principles on a repetitive basis and where the period of each contract is relatively short.
Such policies are issued to cover all services contracts that may be concluded by the exporter
over a period of 24 months ahead.
The Corporation would expect that the terms of payment for the services are in line with
customary practices in international trade in these lines. Contracts should normally provide for an
adequate advance payment and the balance should be payable periodically based on the progress
of work. The payments should be backed by satisfactory security in the form of Letters of Credit
or bank guarantees.
Services policies are designed to cover contracts under which only services are to be rendered.
Contracts under which the value of services to be rendered forms only a small part of a contract
involving supply of machinery or equipment will be covered under an appropriate specific policy
for supply contracts.
Export Turnover Policy - (ETP)
Turnover policy is a variation of the standard policy for the benefit of large exporters who
contribute not less than Rs. 10 lacs per annum towards premium. Therefore all the
exporters who will pay a premium of Rs. 10 lacs in a year are entitled to avail of it.
Distinct features of Turn Over Policy:
The turnover policy envisages projection of the export turnover of the exporter for a year and the
initial determination of the premium payable on that basis, subject to adjustment at the end of the
year based on actual. The policy offers simplified procedure for premium remittance and filing of
shipment information and a substantial turnover based discount on premium rate applicable for
standard policy i.e. Shipment Comprehensive Risk (SCR) policy. It also provides for higher
discretionary credit limits on overseas buyers, based on the total premium paid by the exporter
under the policy. The turnover policy is issued with a validity period of one year. In most of the
other respects including commercial and political risks covers, the provisions relating to standard
policy will apply to turnover policy.
Export Specific Buyer Policy-(BWP)
Buyer wise Policies - Short Term (BP-ST) provide cover to Indian exporters against commercial
and political risks involved in export of goods on short-term credit to a particular buyer. All
shipments to the buyer in respect of whom the policy is issued will have to be covered (with a
provision to permit exclusion of shipments under LC). These policies can be availed of by
(i) Exporters who do not hold SCR Policy and
(ii) By exporters having SCR Policy.
In case all the shipments to the buyer in question have been permitted to be excluded from the
purview of the SCR Policy.
The different types of BP (ST):
? Buyer wise (commercial and political risks) Policy - short-term
? Buyer wise (political risks) Policy - short-term
? Buyer wise (insolvency & default of L/C opening bank and political risks) Policy - short-term.
The risks covered under the Buyer Wise Policy:
Under the policy covers commences from the date of shipment, the following risks:
a.) Commercial Risks:
I. Risks covered on the overseas buyers:
? Insolvency of the buyer.
? Failure of the buyer to make the payment due within a specified period, normally four months
from the due date.
? Buyer's failure to accept the goods, subject to certain conditions.
II. Risks covered on the L/c opening Bank:
? Insolvency of the L/c Opening bank.
? Failure of the L/C opening bank to make the payment due within a specified period normally
four months from the due date.
b. Political Risks:
? Imposition of restriction by the Government of the buyer's country or any Government action,
which may block or delay the transfer of payment made by the buyer.
? War, civil war, revolution or civil disturbances in the buyer's country. New import restrictions
or cancellation of a valid import license in the buyer's country.
? Interruption or diversion of voyage outside India resulting in payment of additional freight or
insurance charges which cannot be recovered from the buyer.
? Any other cause of loss occurring outside India not normally insured by general insurers, and
beyond the control of both the exporter and the buyer.
Consignment Exports Policy - (CEP)
Consignment Exports Policy (Stockholding Agent and Global Entity)
Economic liberalization and gradual removal of international barriers for trade and commerce are
opening up various new avenues of export opportunities to Indian exporters of quality goods.
One of the methods being increasingly adopted by Indian exporters is consignment exports
where the goods are shipped and held in stock overseas ready for sale to overseas ready for sale
to overseas buyers, as and when orders are received. The Consignment Policy cover protects the
Indian Exporters from possible losses when selling goods to ultimate buyers.
There are two policies available for covering consignment export viz;
? Consignment Exports (Stock-holding Agent)
? Consignment Exports (Global Entity Policy)
Under what circumstances, Consignment Exports (Stock Holding Agent) Policy
cover can be availed of?
A consignment Exports (Stock-holding Agent) Policy will be appropriate for each exporter –
stock holding agent combination provided the following criteria are satisfied.
? Merchandise are shipped to an overseas entity in pursuance of an agency agreement;
? The overseas agent would be an independent and separate legal entity with no associate/sister
concern relationship with the exporter;
? The agent’s responsibilities could be any or all of the following, viz., receiving the shipment,
holding the goods in stock, identifying ultimate buyers and selling the goods to them in
accordance with the directions, receiving payments , if any, of his principal (exporter); and
? The sales being made by the agent would be at the risk and on behalf of the exporter (whether
or not such sales are in the agent’s own name or otherwise) in consideration of a commission
or some similar reward or compensation on sales completed.
Under what circumstances Consignment Exports ( Global Entity ) Policy can be
availed of ?
The policy can be availed of in respect of consignment exports made by the Indian exporter
through its overseas associate viz. branch office, sister concern/subsidiary Company etc., who is
called as the global entity, in the following manner.
? Merchandise are shipped to overseas associates;
? Overseas associates receives and holds the goods whether or not under written agreement;
? The overseas party’s responsibilities could ,depending upon its legal status , be any or all of
the following , viz. receiving the shipment , holding the goods in stock , identifying ultimate
buyers and selling the goods to them in accordance with the directions , if any , of the
principal (exporter in India);
? The sales made by the overseas party need not necessarily be at the risk or on behalf of the
exporter.
Exposure Based
Buyer Exposure Policy - (BEP)
Presently, in the policies offered to exporters premium is charged on the export turnover, though
the Corporation’s exposure on each buyer is controlled through a system of approval of credit
limits on the buyer for covering commercial risks. While this suits the small and medium
exporters, many large exporters having large number of shipments have been complaining about
the volume of returns to be filed under the policy necessitating the deployment of their resources
for this purpose and also resulting in possible unintentional omissions or commissions in such
reporting, which have an impact on the settlement of claims. There has been a demand for
simplification of the procedures as well as for rationalization of the premium structure.
Considering the requirements of such exporters, the Corporation has decided to introduce
policies on which premium would be charged on the basis of the expected level of exposure.
Two types of exposure policies – one for covering the risks on a specified buyer and another for
covering the risks on all buyers- are offered.
Two types of Exposure policies are offered, viz;
? Exposure (Single Buyer) Policy – for covering the risks on a specified buyer and
? Exposure (Multi Buyer) Policy – for covering the risks on all buyers.
What does an Exposure (Single Buyer) Policy cover?:
An exporter can choose to obtain exposure based cover on a selected buyer. The cover would be
against commercial and political risks attached to the buyer for both non-LC and LC transactions.
A separate Buyer Exposure Policy will be issued for each buyer covering all the exports to be
made to the buyer during a period of twelve months. If the exporter has opted for commercial and
political risks cover, failure of the LC opening bank in respect of exports against LC will also be
covered, for the banks with World Rank (WR) up to 25,000 as per latest Banker’s almanac. For
covering the political risks only, in respect of LC transactions or shipments to associates, Buyer
Exposure policy with endorsement restricting the cover to political risks only. This policy can be
availed by exporters holding Standard Policy in respect of any of their buyers. Shipments to the
buyers covered under Buyer Exposure Policies would be excluded from the purview of the
Standard Policy.
What is a Multi Buyer exposure based policy ( MBEP) ?
In case of an exporter making exports to a large number of overseas buyer, finds it inconvenient
either to apply for buyer (single buyer) exposure policy for all buyers or declare their exports
shipment wise , it can avail cover through a MBE policy. Under the policy the exporter can take
cover for all its credit term exports made to all buyers for aggregate loss limit (ALL), in respect
of commercial risks and political risks. Normally ALL sought under the policy should not be less
than 10% of the total export turns over for applicable categories/ countries. The policy does not
cover the exports to buyers in the countries which are in the restricted cover country (RCC) list
maintained by the Corporation and buyers under the buyers specific approval list (BSAL) of the
Corporation. The cover for L/c opening banks are also available for banks with World rank up to
25000 as per latest banker’s almanac. Loss limit in respect of individual buyer/bank will be
restricted up to 10% of ALL.
IT-Enabled Services Policy - (ITES)
IT-enabled Services Policy is issued to cover the following commercial and political risks
involved in rendering IT-enabled services to a particular customer.
a.) Commercial Risks:
? Insolvency of the customer.
? Failure of the customer to make the payment due within a specified period, normally four
months from the due date.
? Buyer's failure to accept the services rendered (subject to certain conditions).
b.) Bank Risks :
? Bankruptcy of L/c opening bank.
? Failure of L/c opening bank to make the payment due within a specified period, normally
within four months from the due date (Non-payment due to discrepancies in the document
will not be covered).
c.) Political Risks :
? Imposition of restrictions by the Government of the customer’s country or any Government
action which may block or delay the transfer of payment made by the customer;
? War, civil war, revolution or civil disturbances in the customer’s country.
? New import restrictions or cancellation of a valid import license by authorities in the
customer’s country;
? Cancellation by the Govt. of India a legally valid and binding contract between the exporter
and the customer.
What types of ITES contracts that will be eligible for cover?
ITES policy will provide cover in respect of contracts for rendering service during a defined
period with billing on the basis of service rendered during a period say, a week, a month or a
quarter, where the payments due for the services rendered will be received in foreign currency.
How many types of ITES policies are there?
There are two types of ITES policies;
1. Single Buyer IT – Enabled services Policy (SITES);
2. Multi Customer IT- Enabled services Policy ( MITES).
Small And Medium Enterprise - (SME)
Policy for SME Sector
ECGC introduced a Policy exclusively for the SME sector units in 4th July, 2008. The Policy
particularly provides the SME Sector easy administrative and operational convenience.
The risks covered under the policy:
a.) Commercial Risks
I. Risks covered on the overseas buyers:
? Insolvency of the buyer.
? Failure of the buyer to make the payment due within a specified period, normally 2 months
from the due date.
? Buyer's failure to accept the goods, subject to certain conditions.
II .Risks covered on the L/c opening Bank:
? Insolvency of the L/c Opening bank
? Failure of the L/C opening bank to make the payment due within a specified period normally
2 months from the due date.
b. Political Risks:
? Imposition of restriction by the Government of the buyer's country or any Government action,
which may block or delay the transfer of payment made by the buyer.
? War, civil war, revolution or civil disturbances in the buyer's country. New import restrictions
or cancellation of a valid import license in buyer's country.
? Interruption or diversion of voyage outside India resulting in payment of additional freight or
insurance charges which cannot be recovered from the buyer.
? Any other cause of loss occurring outside India not normally insured by general insurers, and
beyond the control of both the exporter and the buyer.
The features of the SME Policy are as under;
Glance no. Particulars Details
1 Policy Period 12 months
2 Processing Fees Rs.1000
3 Credit Limit Fees No
4 Declarations No
5 Premium Rs 5000
6 Maximum Loss Limit Rs. 10 Lacs
7 Single Loss Limit Rs. 3 Lacs
8 Report of overdue more than 60 days
9 Waiting Period 2 months from due date
10 Percentage of Cover 90%
This Policy is meant for exporters engaged in manufacturing activities having invested in plant
and machinery or engaged in export of services having invested in equipment as per MSMED
Act, 2006. This Policy can be issued to an exporter qualifying as per the MSMED Act, 2006.
This Policy can be issued to an exporter qualifying as per the MSMED Act, 2006. The exporter
desirous of obtaining the Policy should furnish the certificate issued by the designated authority.
(District Industries Centers).
This Policy is not meant for the exporters carrying out trade activities only.
Software Project Policy - (SPP)
The Services Policies of the Corporation which have been in existence for some time were
offered to provide protection of exporters of services including software and related services.
However it was found that the general services policy does not meet with the exact requirements
of software exporters. It was therefore decided to introduce a new credit insurance cover to meet
the needs of the software exporters, namely, software projects policy, where the payments will
be received in foreign exchange. The general services policies will continue to be offered for the
export of services other than software and related services.
What are the software services exports that will be eligible for cover under the Software Project
Policy?
The following software services will be eligible for cover under the Software Projects Policy:
Software project services, either on one time/turnkey basis or progressive/milestone basis,
involving:
? Development of software off-shore (i.e. at the exporters location in India) to be delivered and
implemented in the buyer’s (client) location; or
? Development of software on-site of the client and supply and implementation; or both off-
shore and on-site development.
The risks covered under the policy:
a.) Commercial Risks:
I. Risks covered on the overseas buyers:
? Insolvency of the buyer.
? Failure of the buyer to make the payment due within a specified period, normally four months
from the due date.
? Wrongful repudiation of the contract by the customer after the exporter has incurred expenses
for commencement of services.
b.) Political Risks:
? Imposition of restriction by the Government of the customer’s country or any Government
action, which may block or delay the transfer of payment made by the customers.
? War, civil war, revolution or civil disturbances in the customer's country.
? The imposition in India or in the customer’s country after the date of contract ,of any law or
of an order , decree or regulation having the force of law , which in circumstances outside the
control of the exporter and /or the customer , prevents performance of the contract;
? Or any of the following causes of loss beyond control of the exporters or the customers.
(a). Refusal of visa for the employees of exporter for reasons not attributable to exporter or
buyer;
(b). Increase of in any tax /new levies payable by exporter in customer’s country which is not
recoverable from customer;
(c). Imposition by a competent court of law or the government , a rule or law or an order which
results in losses / additional costs due to infringement of intellectual property rights(IPR) of a
process or software which was either in the domain of free software or the IPR was not
established on the date of contract; etc.
For a, b, c above the cover under the policy would be available to the maximum extent 25% of
the value of export.
Export Credit Insurance for Exporters in Medium and Long Term
(ECIE-MLT):
Construction Works Policy-(CWP)
Construction Works Policy is designed to provide cover to an Indian contractor who executes a
civil construction job abroad. The distinguishing features of a construction contract are that
(a) the contractor keeps raising bills periodically throughout the contract period for the value of
work done between one billing period and another.
b) to be eligible for payment, the bills have to be certified by a consultant or supervisor engaged
by the employer for the purpose and (c) that, unlike bills of exchange raised by suppliers of
goods, The bills raised by the contractor do not represent conclusive evidence of debt but are
subject to payment in terms of the contract which may provide, among other things, for penalties
or adjustments on various counts. The scope for disputes is very large. Besides, the contract value
itself may only be an estimate of the work to be done, since the contract may provide for cost
escalation, variation contracts, additional contracts, etc. It is, therefore, important that the
contractor ensures that the contract is well drafted to provide clarity of the obligations of the two
parties and for resolution of disputes that may arise in the course of execution of the contract.
Contractors are well advised to use the Standard Conditions of Contract (International) prepared
by the Federation International Des Ingenieurs Conseils (FIDIC) jointly with the Federation
International du Batiment et des Travaux Publics (FIBTP).
What are the risks covered by Construction Works Policy?
The Construction Works Policy of ECGC is designed to protect the Contractor from that may be
sustained by him due to the following risks:
? Insolvency of the employer (when he is a non-Government entity);
? Failure of the employer to pay the amounts that become payable to the contractor in terms of
the contract, including any amount payable under an arbitration award;
? Restrictions on transfer of payments from the employer's country to India after the employer
has made the payments in local currency;
? Failure of the contractor to receive any sum due and payable under the contract by reason of
war, civil war, rebellion, etc;
? The failure of the contractor to receive any sum that is payable to him on termination or
frustration of the contract if such failure is due to its having become impossible to ascertain
the amount or its due date because of war, civil war, rebellion etc;
? Imposition of restrictions on import of goods or materials (not being the contractor's plant or
equipment) or cancellation of authority to import such goods or cancellation of export license
in India, for reasons beyond his control; and
Interruption or diversion of voyage outside India, resulting in his incurring in respect of goods or
materials exported from India, of additional handling, transport or insurance charges, which
cannot be recovered from the employer.
Loss coverage:
85%
Important Obligations:
? Obtain indicative premium rate at bid stage
? Seek post awarded approval from AD/WG on award of contract
? Obtain in-principle approval
? Seek cover after payment of premium
? Advise progress of project in accordance with PEM guidelines
? Declaration of overdue payments
? Filing of claim within 12 months from due date
? Sharing of recovery
Highlights:
? Cover can be either for political or comprehensive risks
? Cover for full insurable value including retention portion
? Cover for third country exports as well
? Premium can be paid in installments
? Reduced loss coverage with proportionate reduction in premium.
? Reduced premium for projects funded by Multi-lateral agencies.
Specific Policy for Supply Contract
The Standard Policy is a whole turnover policy designed to provide a continuing insurance for
the regular flow of an exporter's shipments for which credit period does not exceed 180 days.
Contracts for export of capital goods or turnkey projects or construction works or rendering
services abroad are not of a repetitive nature and they involve medium/long-term credits. Such
transactions are, therefore, insured by ECGC on a case-to-case basis under Specific Contract
Policies.
The formalities to be completed before applying for specific policies for contracts.
All contracts for export on deferred payment terms and contracts for turnkey projects and
construction works abroad require prior clearance of Authorized Dealers, EXIM Bank or the
Working Group in terms of powers delegated to them as per exchange control regulations
(Kindly refer to 'Projects Exports Manual' of Reserve Bank of India. For further details go
to www.rbi.org.in. Applications for the purpose are to be submitted to the Authorized Dealer (the
financing bank), which will forward applications beyond its delegated powers to the EXIM Bank.
Proposals for Specific Policy are to be made to ECGC after the contract has been cleared by the
Authorized Dealer, EXIM Bank or the Working Group, as the case may be.
Risk Covered:
Commercial:
? Insolvency of buyer.
? Protracted default of buyer.
? Buyer’s failure to accept goods.
Political:
? War, Civil War, Revolutions in buyer’s country.
? New Import restrictions.
? Transfer delays.
L/C Opening Bank Risks:
? Insolvency
? Default
Loss Coverage:
90%
Important Obligations:
? Obtain indicative premium rate at bid stage
? Seek post awarded approval from AD/WG on award of contract
? Obtain in-principle approval
? Seek cover after payment of premium
? Advise progress of project in accordance with PEM guidelines
? Declaration of overdue payments
? Filing of claim within 12 months from due date
? Sharing of recovery
Highlights:
? Cover can be either for political or comprehensive risks
? Add on pre-shipment risk cover can also be obtained
? Cover for full insurable value including retention portion
? Cover for third country exports as well
? Premium can be paid in installments
? Reduced premium for projects funded by Multi-lateral agencies.
Specific Shipment Policy-(SSP)
Specific Shipments Policy can be obtained by exporters that have secured contract for supply of
capital goods such as machinery or equipments on deferred terms of payment. The cover
provides protection against non-receipt of payments due to commercial and /or political risks.
Risk Covered:
Commercial:
? Insolvency of buyer
? Protracted default of buyer
? Buyer’s failure to accept goods
Political:
? War, Civil War, Revolutions in buyer’s country
? New Import restrictions
? Transfer delays
L/C Opening Bank Risks:
? Insolvency
? Default
Loss Coverage:
90%
Highlights:
? Obtain indicative premium rate at bid stage
? Seek post awarded approval from AD/WG on award of contract
? Obtain in-principle approval
? Seek cover after payment of premium
? Advise progress of project in accordance with PEM guidelines
? Declaration of overdue payments
? Filing of claim within 12 months from due date
? Sharing of recovery
Important Obligations:
? Cover can be either for political or comprehensive risks
? Add on pre-shipment risk cover can also be obtained
? Cover for full insurable value including retention portion
? Cover for third country exports as well
? Premium can be paid in installments
? Reduced premium for projects funded by Multi-lateral agencies
Specific Services Policy-(SRC)
Where Indian companies conclude contracts with foreign principals for providing them with
technical or professional services, payments due under the contracts are open to risks similar to
those under supply contracts. In order to give a measure of protection to such exporters of
services, ECGC has introduced the Services Policy. A wide range of services like technical or
professional, hiring or leasing can be covered under these Policies.
Risk Covered:
Commercial:
? Insolvency of buyer
? Protracted default of buyer
Political:
? War, Civil War, Revolutions in buyer’s country
? Transfer delays
LC Opening Bank Risks:
? Insolvency
? Default
Loss Coverage:
90%
Important Obligations:
? Obtain indicative premium rate at bid stage
? Seek post awarded approval from AD/WG on award of contract
? Obtain in-principle approval
? Seek cover after payment of premium
? Advise progress of project in accordance with PEM guidelines
? Declaration of overdue payments
? Filing of claim within 12 months from due date
? Sharing of recovery
Highlights:
? Cover can be either for political or comprehensive risks
? Cover for full insurable value including retention portion
? Premium can be paid in installments
? Reduced premium for projects funded by Multi-lateral agencies.
? Reduced loss coverage with proportionate reduction in premium
Letter of Credit confirmation Cover
Transfer Cover
When a bank in India adds its confirmation to a foreign Letter of Credit, it binds itself to honor
the drafts drawn by the beneficiary of the Letter of Credit without any recourse to him provided
such drafts are drawn strictly in accordance with the terms of the Letter of Credit. The
confirming bank will suffer a loss if the foreign bank fails to reimburse it with the amount paid to
the exporter. This may happen due to the insolvency or default of the opening bank or due to
certain political risks such as war, transfer delays or moratorium, which may delay or prevent the
transfer of funds to the bank in India. The Transfer Cover seeks to safeguard banks in India
against losses arising out of such risks.
Transfer Cover is issued, at the option of the bank to cover either political risks alone, or both
political and commercial risks. Loss due to political risks is covered up to 90% and loss due to
commercial risks up to 75%.
What are the applicable premium rates?
The premium rates depend on the country of export and the tenor of L/C.
CHAPTER – 3
Performance Analysis & Corporate Social Responsibility
EXPORT PERFORMANCE GUARANTEE
What are the different types of bank guarantees which exporters are required
to furnish?
Exporters are sometimes called upon to execute bonds duly guaranteed by an Indian bank at
various stages of export business. An exporter who desires to quote for a foreign tender may
have to furnish a bank guarantee in the form of a bid bond. If he wins the contract, he may have
to furnish bank guarantees to foreign buyers to ensure due performance or against advance
payment or in lieu of retention money or to a foreign bank in case he has to raise overseas
finance for his contract. Further, for obtaining import licenses for raw materials or capital goods,
exporters may have to execute an undertaking to export goods of a specified value within a
stipulated time, duly supported by bank guarantees. Bank guarantees are also furnished by
exporters to the Customs, Central Excise, or Sales Tax authorities for the purpose of clearing
goods without payment of duty or for exemption from tax for goods procured for export.
Exporters may also be required to furnish guarantees in support of export obligations to Export
Promotion Councils, Commodity Boards, The State Trading Corporation of India, the Minerals
and Metals and Metals Trading Corporation of India etc.
What is the objective of Export Performance Guarantee?
An export proposal may be frustrated if the exporter's bank is unwilling to issue a guarantee,
which the exporter may be required to furnish. The Export Performance Guarantee provided by
ECGC is aimed at helping the exporter in such cases. The Guarantee, which is in the nature of a
counter guarantee to the bank, is issued to protect the bank against losses that it may suffer on
account of guarantees given by it on behalf of exporters. This protection is intended to encourage
banks to give guarantees on a liberal basis for export purposes.
What are the main features of Export Performance Guarantee?
Normally, cover is extended up to 75 percent of loss in the case of guarantees in connection with
bid bonds, performance bonds, advance payment and local finance guarantees and guarantees in
lieu of retention money. In the case of bid bonds relating to exports on medium/long term credit,
overseas projects, and projects in India financed by international financial institutions as well as
supplies to such projects, ECGC is agreeable to issue Export Performance Guarantee on payment
of 25% of the prescribed premium. The balance of 75% becomes payable by the bankers if the
exporter succeeds in the bid and gets the contract.
What are the applicable premium rates?
While the premium rate for guarantee issued to cover bond relating to exports on short-term
credit is 0.90% p.a. for 75% cover, it is lower for bonds relating to exports on deferred credit and
projects, namely 0.80% p.a. for 75% cover and 0.95% p.a. for 90% cover.
Export Performance Guarantee
Exporters are often called upon to execute bonds duly guaranteed by an Indian bank at various
stages of export business. An exporter who desires to quote for a foreign tender may have to
furnish a bank guarantee for the bid bond. If he wins the contract, he may have to furnish the
bank guarantees to the foreign buyers to ensure due performance or against advance payment or
in lieu of retention money or to a foreign bank in case he has to raise overseas finance for his
contract. Further, for obtaining import licenses for raw materials of capital goods, exporters
may have to execute an undertaking to export goods of specified value within a stipulated
time, duly supported by bank guarantees. Bank guarantees are also furnished by exporters to the
Customs, Central excise or Sales tax authorities for the purpose of clearing goods without
payment of duty or for exemption from tax for goods procured for export. Exporters also furnish
Guarantees in support of the export obligations to Export Promotion Councils, Commodity
Boards, The State Trading Corporation of India, the Minerals and Metals Trading Corporation
of India or recognized Export Houses.
An export proposition may be frustrated if the exporter’s bank is unwilling to issue the
guarantee. The Export Performance Guarantee is aimed at meeting such situations.
Export Performance Guarantee is an insurance cover for banks, which issues various kinds of
guarantees on behalf of exporters in order to facilitate export transactions. The insurance is
provided by ECGC with the objective of enabling exporters to obtain the required guarantee
facility from banks on easy terms. The Guarantee, which is in nature of a counter guarantee to
the bank, is issued to protect the bank against losses that it may suffer on account of guarantees
given by it on behalf of export purposes.
Export Performance Guarantee (EPG) may be issued to a bank to cover any guarantee that it may
issue in connection with an export transaction. A list of such guarantees is listed below.
• Bid Bond or Bid Guarantee, which is required to be submitted along with bids for export
contracts.
• Performance Bond or Performance Guarantee which is issued to the foreign buyer for due
performance of the contract.
• Advance Payment Guarantee, which is issued to the foreign buyer against advance
payment, received from the buyer.
• Retention Money Guarantee issued to the foreign buyer in lieu of his retaining a portion of each
payment as Retention Money.
• Guarantee issued to an overseas bank for the purpose of enabling the foreign bank to extend
foreign currency loan/ advance to the Indian exporter for the purpose of executing an export
contract.
• Guarantee issued to the Customs Authorities in India in lieu of Customs duty payable on
imported raw material or components meant for manufacturing goods for export.
• Guarantee issued to Import Control Authorities in India in support of export undertakings given
by the exporter who gets advance import license.
• Guarantee issued to Sales Tax Authorities in lieu of payment of sales tax on goods meant for
export.
• Guarantee issued to Export Promotion Council against allotment of export quota.
EPG provides cover to the bank against the risk of loss involved in issuing the above types of
guarantees. For the purposes of EPG, a loss will be deemed to have arisen when the bank is
unable to recover from the exporter the money that it has had to pay to the beneficiary of the
guarantee on his invoking it. The bank will have to ensure that:
1. The guarantee was invoked by the beneficiary
2. The amount demanded by the beneficiary was paid by it strictly in accordance with the
guarantee
3. The exporter was called upon to reimburse the bank with the said amount and,
4. The exporter has failed to discharge the debt so created.
The risk insured under the EPG are the insolvency of the exporter and its protracted
default. Normally a cover is extended up to 75% of loss but in the case of guarantees in
connection with bid bonds, performance bonds advance payment and local finance guarantees
and guarantees in lieu of retention money, the cover may be increased up to 90% subject to
proportionate increase in premium.
While the premium rate for Guarantee issued to cover bond relating to exports on short-term
credit is 0.90% p.a. for 75% cover and 1.08% p.a. for 90 % cover, it is lower for bonds, relating
to exports on deferred credit and Projects. The rate of premium is 0.80% p.a. for 75% cover and
0.95% for 90% cover. In case of Bid Bonds relating to exports on medium/long term credit,
overseas Projects, and Projects in India financed by international financial institutions as well as
supplies to such Projects, ECGC is agreeable to issue Export Performance Guarantee on payment
of 25% of the prescribed premium. The balance of 75% becomes payable to the Corporation by
the bankers if the exporter succeeds in the bid and gets the contract.
In order to reduce the cost of participating in global tenders for export of capital goods or
Projects, EPG to cover the related Bid Bond Guarantees are issued on payment of 25% of the
premium due. No further premium is payable if the exporter is not declared successful in the
bid. The balance amount of the premium will have to be paid only if the exporter succeeds in the
bid.
EPG can be obtained either to cover a specified single guarantee or for all the guarantees that
may be issued during a period of 12 months on account of a specified exporter. Where EPC is
taken for a single guarantee, the bank is required to pay the full premium in advance. EPG for
covering all the guarantees that may be issued over a 12 month period on behalf of a single
exporter will be issued on payment of small Guarantee Fees. Thereafter, the bank will have to
pay premium on the value of each guarantee, as and when it is issued. Exporters and Bankers can
obtain proposal forms from the nearest branch of the Corporation.
PERFORMANCE ANALYSIS OF ECGC
FINANCIAL HIGHLIGHTS
The Company has registered a 15% growth in revenue during the year ended March 31, 2013
and the performance of the Company has also been reasonably sound during the period. The
gross premium earned by the Company during the FY 2012-13 was ` 1,157.25 crores, against `
1,004.83 crores during the previous year. Post adjustment of Reinsurance Cession and Reserve
for un-expired risks, the figure for premium earned (Net) for the FY 2012-13, increased
marginally to ` 796.04 crores as against ` 766.25 crores for the previous year.
During the FY 2012-13, the total claims paid by the Company amounted to ` 548.50 crores as
against the previous year's figure of ` 713.03 crores. After adjusting for reinsurers' share,
recoveries and provisions, the incurred claim for the FY 2012- 13 was ` 812.80 crores as against
` 679.61 crores during FY 2011-12.
The Investment and other income have increased to ` 410.56 crores in FY 2012-13 from ` 359.91
crores in the previous year. The Net Worth of the Company as on March 31, 2013 was ` 2,436.99
crores as against ` 2,167.75 crores as on March 31, 2012.
PROFITS AND APPROPRIATIONS
During the FY 2012-13, total income from Operations grew by 6.07% to ` 1,020.62 crores from `
962.19 crores in the previous year. During the year, the Company posted an Operating Profit of `
171.48 crores compared to an Operating Profit of ` 166.95 crores during the previous year.
During the FY 2012-13, Profit Before Tax (PBT) was ` 350.14 crores as against ` 327.73 crores
in the previous year. After providing for ` 107.35 crores towards tax and prior period
adjustments, Profit After Tax (PAT) available for appropriation in the current year was ` 242.79
crores as against ` 225.21 crores in the previous year.
PERFORMANCE HIGHLIGHTS OF 5 YEARS
(In Rs. Crores)
Years 2012-13 2011-12 2010-11 2009-10 2008-09
Value Of Business Covered
Short Term Policies
Short Term ECIB
Medium & Long Term Covers
126100.41
133250.78
10160.31
119,621.00
120,118.65
6,886.48
93,127.40
331,758.29
7,002.65
85,686.85
271,273.95
6,767.51
68,870.85
261,731.51
4,855.11
Total 269.511.50 246,626.13 431,888.34 363,728.31 335,457.47
Premium Income
Short Term Policies
Short Term ECIB
Medium & Long Term Covers
360.68
751.72
44.85
355.89
601.82
47.12
333.66
510.57
41.23
289.43
486.78
36.79
246.71
464.81
33.79
Total 1,157.25 1,004.83 885.46 813.00 744.68
Claims Paid
Short Term Policies
Short Term ECIB
Medium & Long Term Covers
113.69
396.61
38.2
87.03
626.00
0.00
160.90
459.63
0.00
270.02
371.70
0.00
217.23
234.19
0.00
Total 548.50 713.03 620.53 641.72 451.42
Recoveries Made
Short Term Policies
Short Term ECIB
Medium & Long Term Covers
7.4
104.71
8.42
6.31
152.59
9.74
9.27
110.65
16.14
16.33
110.87
6.40
56.97
151.29
0.32
Total 120.53 168.84 136.06 133.60 208.58
Source: - Compiled on the basis of Various Annual Reports of ECGC
When we discussed about the financial performance of ECGC, than we find that the value of
business covered in term of short term policy show a increasing trends i.e. 68870.85 in 2008-09
to 126100 in 2012-13. In term of short term ECIB show a volatile position i.e261731.51in 2008-
09, 331758.29 2010-11 and 133250.78 in 2012-13.
When we make an analysis of the financial performance of ECGC, than we find that the value of
business covered in term of short term policy show a increasing trends i.e. 68870.85 in 2008-09
to 126100 in 2012-13.
2008-09 2009-10 2010-11 2011-12 2012-13
Short term Policy 68870.85 85686.85 93127.4 119621 126100
0
20000
40000
60000
80000
100000
120000
140000
S
h
o
r
t
t
e
r
m
p
o
l
i
c
y
2012-13 2011-12 2010-11 2009-10 2008-09
Short Term ECIB 133250.78 120,118.65 331,758.29 271,273.95 261,731.51
0
50000
100000
150000
200000
250000
300000
350000
Short Term ECIB
When we make an analysis of the financial performance of ECGC, than we find that the value of
business covered in term of short term ECIB show a volatile position i.e261731.51in 2008-09,
331758.29 2010-11 and 133250.78 in 2012-13.
When we make an analysis about the financial performance of ECGC, than we find that the
value of business covered in term of medium and long term covers show an increasing trend i.e
4855.11 in 2008-09 to 10160.31 in 2012-13.
Corporate Social Responsibility
As per the MOU signed with Ministry of Commerce, Govt. of India for the year 2011-12,ECGC
has undertaken following three projects at M Ward, Mankhurd, Mumbai with the help of
National Corporate Social Responsibility Hub ( NCSRH) under administrative control of Tata
Institute of Social Science, ( TISS ) ,Chembur, Mumbai.
1. Empowerment of Women
2. Scholarship to Meritorious Students from underprivileged sections
3. Support to export oriented Skill Development Centre
The above projects will be completed by March’2013.
Under the Corporate Social Responsibility (CSR) initiatives, ECGC had released an amount of
Rs.6,50,500 on 21.4.2011 for construction of first floor to Nirdhar Pratisthan , Mumbai, a
2012-13 2011-12 2010-11 2009-10 2008-09
Medium & Long Term Covers 10160.31 6,886.48 7,002.65 6,767.51 4,855.11
0
2000
4000
6000
8000
10000
12000
Medium & Long Term Covers
registered Charitable Trust under Mumbai Public Trust Act 1950 which provides permanent
home care service for mentally challenged persons.
Under Corporate Social Responsibility (CSR) ECGC has donated school bus to Matru Seva
Sangh's, Nadanvan School, Nagpur (School for Mentally challenged children) on 01/04/2011.
Under the Corporate Social Responsibility (CSR) ECGC has donated an amount of Rs.28.45
lacs on 28.03.2011 to Priya Darshani Jan Kalyan Samiti , Gyanpur, Dist. Bhadohi. An NGO
providing education to the children of Carpet weavers
CORPORATE ALLIANCE
ECGC - D & B Alliance
ECGC and Dun & Bradstreet (D&B) had entered into an agreement whereby ECGC shall use its
best endeavors to promote marketing and distribution of Cross Border Information Services and
Domestic information. In terms of the agreement, the following services shall be available.
Business Information Report : (BIR)
D & B can provide credit information reports on buyers to exporters. To avail of this facility,
Exporter is required to submit his request together with necessary charges to the nearest office of
ECGC which will be forwarded to National Marketing Division, Mumbai for necessary action. The
report of the buyer will be sent by D&B directly to the exporter.
Business Marketing Services (BMS)
At the request of the customer , D & B can provide a list of 10 buyers for a specific commodity
and/or from a selected country from the vast database of buyers it has all over the Globe. Exporter
is required to submit his request together with necessary charges to the nearest office of ECGC
which will be forwarded to National Marketing Division, Mumbai for necessary action. The list of
buyers will be sent by D&B directly to the Exporter. The charges/fee for providing this service will
be based on Continent/Country and measured in units.
Duns Number :
Any exporter who wishes to get himself registered in the database of D & B can do so free of
cost if he is the Policyholder of ECGC and approaches D&B through ECGC. By registering himself
, the Indian exporter can get enquiries from all over the world for their products. Necessary
application form can be obtained from the nearest branch of ECGC.
What is NEIA?
The National Export Insurance Account has been set up by the Government of India (GOI) and
operated by ECGC to provide adequate credit insurance cover to protect long and medium term
exporters against both, political and commercial risks of the overseas country and the buyer/bank
concerned. The NEIA trust also provides covers to banks for Buyer’s Credit transactions which
facilitates foreign buyer to pay for project exports from India.
Indian companies secure overseas projects against stiff international competition and needs
adequate credit insurance to enhance their competitiveness. Projects are required to be
undertaken, specifically due to the long term economic interest and political relationship of India
with importing country. Given India’s long term economic and political interests with the
concerned country, it is crucial that ability of Indian exporters undertaking such contracts is not
hampered by the inability to obtain credit insurance cover. With this view GOI has set up the
NEIA.
ECGC, a Govt. of India enterprise under the aegis of the Ministry of Commerce, apart from
insuring credit risks under short term exports also provides credit insurance cover to Medium and
Long term exporters. However, at times, its own limitations make it difficult for ECGC to cover
such risks on purely commercial considerations, taking into account the long repayment period,
the large value of the contracts and the difficult economic and political conditions of the country,
coupled with the fact that reinsurance cover is generally not available in such cases.
The NEIA Trust, a public trust set up by the Government will manage the funds provided by the
Government. The trust has been assured a corpus of Rs.2,000 crores by the end of the 11th plan
period. At any point of time an exposure equal to ten times of the corpus will be underwritten by
NEIA subject other criteria.
To ensure proper & effective utilization of the NEIA scheme, to monitor its operations and to
provide guidance, the GOI has set up a High Powered Committee, the Committee of Directions
(COD) comprising : a) The Secretary-Ministry of Commerce- Chairman b) The Secretary-
Department of Economic Affairs c) The Secretary- Ministry of External Affairs, d) The
Additional Secretary and Financial Advisor-Dept. of Commerce, e) The CMD-ECGC, f) The
CMD- Exim Bank, g) Representatives of the Reserve Bank of India, h) Joint Secretary- Ministry
of Commerce & Industry, who is also a Member Secretary.
.
FINDINGS AND SUGGESTIONS
FINDINGS
The Company has registered a 15% growth in revenue during the year ended March 31, 2013
and the performance of the Company has also been reasonably sound during the period. The
gross premium earned by the Company during the FY 2012-13 was ` 1,157.25 crores, against `
1,004.83 crores during the previous year. Post adjustment of Reinsurance Cession and Reserve
for un-expired risks, the figure for premium earned (Net) for the FY 2012-13, increased
marginally to ` 796.04 crores as against ` 766.25 crores for the previous year.
During the FY 2012-13, the total claims paid by the Company amounted to ` 548.50 crores as
against the previous year's figure of ` 713.03 crores. After adjusting for reinsurers' share,
recoveries and provisions, the incurred claim for the FY 2012- 13 was ` 812.80 crores as against
` 679.61 crores during FY 2011-12.
During the FY 2012-13, total income from Operations grew by 6.07% to ` 1,020.62 crores from `
962.19 crores in the previous year. During the year, the Company posted an Operating Profit of `
171.48 crores compared to an Operating Profit of ` 166.95 crores during the previous year.
During the FY 2012-13, Profit Before Tax (PBT) was ` 350.14 crores as against ` 327.73 crores
in the previous year. After providing for ` 107.35 crores towards tax and prior period
adjustments, Profit After Tax (PAT) available for appropriation in the current year was ` 242.79
crores as against ` 225.21 crores in the previous year.
The Investment and other income have increased to ` 410.56 crores in FY 2012-13 from ` 359.91
crores in the previous year. The Net Worth of the Company as on March 31, 2013 was ` 2,436.99
crores as against ` 2,167.75 crores as on March 31, 2012.
Suggestions
After going through various aspects of the company the following measures can be suggested:-
? MARKETING:- It has been observed that company keeps a very low profile. This
can prove to be a threat, especially when private players are planning to enter the market.
The company should market itself through newspapers, exporter journals, export
seminars etc.
? DOCUMENTATION:- Steps should be taken to minimize the paperwork at the office. It
has been observed that most of the client had a problem in understanding the
documentation process.
? EXPANSION OF NETWORK:- Though ECGC has branches in every major
cities in the country, it must consider setting up branches in smaller towns such as Bhuj
(Gujarat) which is famous for its handicrafts, Dhanbad (Jharkhand) famous for coal
mining etc. This will create a new market for the company. Thus increasing the
profitability.
? EXPANSION OF BUSINESS:- Having such vast experience in export credit
insurance, the company must seek to expand in domestic credit insurance too. As the
economy marches ahead the domestic trade is bound to increase manifolds. This be the
correct time to enter the market as the economy is booming and trade is back on track.
? USE OF I.T:- Facilities such as e-filing of declaration of shipment, online payment of
premium etc. should be considered. This would make the documentation process quick
and at the same time it will simplify it.
Suggestions from the perspective of exporters:
1- In cases where the export credit limits are utilized fully, banks may adopt a flexible approach
in negotiating the bills drawn against LCs and consider in such cases delegating
discretionary/higher sanctioning powers to branch managers to meet the credit requirements of
the exporters. Similarly, branches may also be authorized to disburse a certain percentage of the
enhanced/adhoc limits, pending sanction by higher authorities/board/committee who had
originally accorded sanctions, to enable the exporters to execute urgent export orders in time.
2. It is reported that banks are hesitant to waive submission of order/LC even in respect of
exporters with good track record as settlement of claims, if any, by ECGC is adversely affected
by such waivers. ECGC has reported that any waiver of submission of order/LC should form part
of the terms of sanction of the export credit limits and should be communicated to ECGC. Where
such waivers are permitted ab-initio and the system of obtaining periodical statement of
outstanding orders/LCs on hand has been put in place, the same may be incorporated in the
sanction proposals as well as in the sanction letters issued to exporters and appropriately brought
to the notice of ECGC. Further, if such waivers are permitted at a time subsequent to sanction of
export credit limits with the approval of the appropriate authority, the same may be incorporated
in the terms of sanction by way of amendments and communicated to ECGC.
CONCLUSION
As we know the very objective of ECGC is to boost export and secure the Balance of Trade
favorable. ECGC since its inception till date have played a pivotal role in bringing a sense of
security and confidence among the exporting community by providing cost effective insurance
covers to both exporters and banks.
The majority of the non-policy holders are leaned towards retaining their risks, as they believe
that they are in a position to meet their financial risks out of their contingency funds and also
their buyers are the trusted ones and there are almost nill chances of default of payments on the
part of importers /buyers. I feel that despite ECGC has made highly incentivized schemes for
exporters as to be continued unclaimed export business, by providing NCB of 5% or 50% of
the total premium charged, based upon the concerned export business track records, the non-
policy holders are not interested in such policy. In this context a research needs to be done to
rationalize the overall products and services structure of the organization.
ECGC is currently enjoying the monopoly status in the credit insurance industry in India. The
company has wide network of branches catering to almost every type of exporters. Backed by the
Government of India the company has a great financial backup. But with new companies such as
Tata AIG, Bajaj Allianz, New India Assurance etc. planning to enter the market it’s going to be
tough.
The export credit business in India is still in its nascent stage because ECGC cover is barely 10%
of the total export business which is quite low and hence a lot of things need to be done.
BIBLIOGRAPHY
Books:
KOTHARI. Export Promotion Measures of India
GURUSAMY. Financial Services
SHARMA. Export Marketing
GIANTURCO. Export Credit Agencies
KUMAR. Export Financing In India
CHRISTOPHER, MICHAEL. Officially Supported Export Credit Developments
and Prospects.
BATTY. Industrial Administration and Management.
HARRIS. Economic Planning
TAUSSIG. Principles of Economics
Periodicals and Reports:
Yojana - Publisher : Ministry of Information and Broadcaster.
The Economist
The Indian Economy
India Today
Reader’s Digest
Business Weekly
Economic Weekly
Annual Report of ECGC: 2008-09
Annual Report of ECGC: 2009-10
Annual Report of ECGC: 2010-11
Annual Report of ECGC: 2011-12
Annual Report of ECGC: 2012-13
Websites:
? www.ecgcindia.in (official site of ECGC)
? www.ecgc.in/portal
? www.unionbankofindia.co.in
? www.rbi.org.in
doc_980844870.docx
A Dissertation report prepared about the woking process of ECGC.
DISSERTATION
ON
“A STUDY OF FUNCTIONS AND PERFORMANCE OF EXPORT CREDIT
GUARANTEE CORPORATION OF INDIA”
SUBMITTED IN PARTIAL FULLFILLMENT OF THE REQUIRMENT FOR
THE AWARD OF THE DEGREE OF
MASTER OF FOREIGN TRADE
(2013-2014)
Under the Supervision of: Submitted by:
Dr. R.S. Meena Vikash
Associate Professor MFT IV Semester
Faculty of Commerce Roll No. 12387C0030
BHU, Varanasi Enroll No. 346087
FACULTY OF COMMERCE
BANARAS HINDU UNIVERSITY
VARANASI
FACULTY OF COMMERCE
MASTER OF FOREIGN TRADE
B.H.U VARANASI-221005
Ref. No. ……….. Date-…………….
CERTIFICATE OF SUPERVISOR
This is to certify that Mr. Vikash has completed this project report on the topic ?A Study of
Functions and Performance of Export Credit Guarantee Corporation of India” in the
partial fulfillment of the degree of Master of Foreign Trade course of the Faculty of commerce
B.H.U.
His dissertation entitled ?A Study of Functions and Performance of Export Credit
Guarantee Corporation of India? presents a compilation of various information and data which
he has collected from different secondary sources and websites.
I wish him all the success and a bright future ahead.
Dr. R.S. Meena
Associate Professor
Faculty of Commerce
Banaras Hindu University
PREFACE
The dissertation report is prepared in respect of dissertation program to be undertaken in 4
th
semester of Master of Foreign Trade (MFT).
The dissertation project entitled as “A Study of Functions and Performance of EXPORT
CREDIT CORPORATION OF INDIA” is a part of the study of Master of Foreign Trade
(MFT) 4
th
semester examination.
Foreign Trade plays a crucial role in India’s economic growth. The project explores the trends of
Insurance available for the Exporters as well as for banks. Government of India is taking every
step cautiously to promote Exports of India. Since exports allow the inflow of foreign exchange
in India and thus makes it economically powerful.
In order to achieve the objective and better understand the export insurance available for
Exporters and Banks. This report is written in an easy and understandable language. I have given
my full effort to complete this dissertation in an appropriate way.
Vikash
Master of Foreign Trade
4
th
Semester
Roll – 12387CO030
ACKNOWLEDGEMENT
I take this opportunity to express my sincere gratitude to all those who have guided and
supervised me in completing my Dissertation Report. I must acknowledge my indebtedness to
various scholars and their works whose ideas I have interwoven in my dissertation report.
I am profoundly grateful to my revered mentor to Dr. R.S.Meena who has supported and
motivated me continuously. It was his kind support and guidance that I could complete the
project work. I am also thankful to Prof. A.R.Tripathi, Head and Dean of the Faculty of
Commerce who provided this opportunity.
I would also like to express my sincere gratitude to my parents. It is with their blessings the
present work has seen the light of the day. Last but not the least, I am thankful and indebted to
Almighty God, who blessed and enabled me to complete the work.
Date - Vikash
Place - Varanasi Master of Foreign Trade (MFT)
IV
th
– Semester
12387C0030
DECLARATION
I hereby declare that this dissertation titled ?A Study of Functions and Performance of Export
Credit Guarantee Corporation of India? is my original work and have been prepared under the
supervision of Dr. R.S.Meena, Faculty of Commerce, B.H.U.
All the information mentioned in this project work is true and accurate to the best of my
knowledge.
Vikash
MFT- IV
th
Sem.
Roll No.-30
CONTENTS
1. INTRODUCTION…………………………………………………………..7 -23
? Introduction
? History of ECGC
? Role of ECGC
? Board of Directors and Organization Structure
? Code of Ethics
? Objectives of ECGC
? What does ECGC do
? How does ECGC help Exporters
? Need for Credit Insurance
? Notable Records of ECGC
? Objectives of Study
? Scope of Study
? Research Methodology
? Plan of Study
2. Working Process of ECGC…………………………..……………………24 - 79
? Functions of ECGC
? Covers Issued By ECGC
? ECGC – WTPS Cover
? Overseas Investment Insurance
? Schemes for Project Exports
? Buyer’s Credit / Line of Credit Cover
? Types of Investment
? New Initiatives
? Payment of Claims
? Specific Policies for Supply Contract
? Export Credit Insurance for Banks
? Export Credit Insurance for Exporters
3. Performance Analysis & CSR………………………………………….80 – 90
? Objectives of EPG
? Features of EPG
? Performance Analysis
? Graphical Representation
? Corporate Social Responsibility
Findings and Suggestions
Bibliography
CHAPTER - 1
INTRODUCTION
The Export Credit Guarantee Corporation of India Limited (ECGC) was established on 30 July
1957 with an objective to provide insurance cover in respect of risks in export trade. These risks
may include loss of money on account of foreign buyer becoming bankrupt or sudden import or
exchange restrictions resulting in stopping of payments etc. The Export Credit Guarantee
Corporation of India Limited is a company wholly owned by the Government of India based in
Mumbai, Maharashtra. It provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce. Government of India had initially set up Export Risks
Insurance Corporation (ERIC) in July 1957. It was transformed into Export Credit and Guarantee
Corporation Limited (ECGC) in 1957 and to Export Credit Guarantee Corporation of India in
1983.
ECGC of India Ltd, was established in July, 1957 to strengthen the export promotion by
covering the risk of exporting on credit. It functions under the administrative control of the
Ministry of Commerce & Industry, Department of Commerce, Government of India. It is
managed by a Board of Directors comprising representatives of the Government, Reserve Bank
of India, banking, Insurance and exporting community.
ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The
present paid-up capital of the company is Rs.900 crores and authorized capital Rs.1000 crores.
Shri Anand Sharma, Minister of Commerce & Industry, Government of India, inaugurated the
first overseas office of ECGC in London on September 17, 2013.
The mission of ECGC is to support the Indian Export Industry by providing cost effective
insurance and trade related services to meet the growing needs of Indian export market by
optimal utilization of available resources. ECGC Export Credit Guarantee Corporation of India
Ltd. (ECGC) is a Government of India Enterprise which provides export credit insurance
facilities to exporters and banks in India. It functions under the administrative control of Ministry
of Commerce & Industry, and is managed by a Board of Directors comprising representatives of
the Government, Reserve Bank of India, banking and insurance and exporting community. Over
the years, it has evolved various export credit risk insurance products to suit the requirements of
Indian exporters and commercial banks. ECGC is the seventh largest credit insurer of the world
in terms of coverage of national exports. The present paid up capital of the Company is Rs. 900
Crores and the authorized capital is Rs. 1000 Crores. The Export Credit Guarantee Corporation
of India Limited (ECGC) is a company wholly owned by the Government of India based in
Mumbai, Maharashtra. It provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce. Government of India had initially set up Export Risks
Insurance Corporation (ERIC) in July 1957. It was transformed into Export Credit and Guarantee
Corporation Limited (ECGC) in 1964 and to Export Credit Guarantee of India in 1983 ECGC is
essentially an export promotion organization, seeking to improve the competitive capacity of
Indian exporters by giving them credit insurance covers comparable to those available to their
competitors from most other countries. It keeps its premium rates at the lowest level possible.
Payments for exports are open to risks even at the best of times. The risks have assumed large
proportions today due to the far-reaching political and economic changes that are sweeping the
world. An outbreak of war or civil war may block or delay payment for goods exported. A coup
or an insurrection may also bring about the same result. Economic difficulties or balance of
payment problems may lead a country to impose restrictions on either import of certain goods or
on transfer of payments for goods imported. In addition, the exporters have to face commercial
risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer
going bankrupt or losing his capacity to pay are aggravated due to the political and economic
uncertainties. Export credit insurance is designed to protect exporters from the consequences of
the payment risks, both political and commercial, and to enable them to expand their overseas
business without fear of loss.
India’s known strength in handicrafts, gems & Jewelleries, Apparels, software and IT and
tremendous e-commerce potential ensures progressive up trend in growth of the Indian economy.
The Government’s current Import & Export policies offer a more investor friendly economic
environment and are geared towards more investment in promoting Import and export
Trade. These measures have had a significant thrust on promoting the development of
infrastructure facilities in various parts of India, Like Export Promotion Zones etc. Every
business the probability of risk & profit .In the case of International business, the credit risk is
higher. Hence the Institutions like Export Credit Guarantee Corporation of India Ltd and its
services are more credible.
HISTORY OF THE ECGC
The need for export promotion had started immediately after Independence in 1947. In 1953, a
proposal for initiation of an export credit guarantee scheme was put forward at a meeting of the
Export Advisory Council. Ministry of Commerce & Industry analyzed in depth the pros and cons
of the Export Credit Insurance Scheme and a revised draft proposal on the scheme were
presented to the Export Advisory Council in 1955. Shri T.T. Krishnamachari, Finance Minister
in Pandit Nehru’s cabinet appointed a special committee under the Chairmanship of Shri
T.C.Kapur to examine the feasibility of setting up an effective organization to provide insurance
against export credit risks. The Government accepted the recommendations of Kapur Committee
and thus the Export Risk Insurance Corporation (ERIC) was registered on 30th July 1957 in
Mumbai as a Private Ltd. Company, entirely state owned, under the Companies Act with an
authorized capital of Rs.5 crores and paid up capital of Rs.25 lakhs. Shri Ratilal M Gandhi was
the First Chairman and Shri T C Kapur was the First Managing Director of the Corporation. Shri
Morarji Desai, Union Commerce Minister inaugurated ERIC and the first Policy was issued on
14th October 1957. After introduction of insurance covers to banks during the period 1962-64,
ERIC’s name was changed to Export Credit & Guarantee Corporation Ltd in 1964. To bring
Indian identify in the name, ECGC was renamed as Export Credit Guarantee Corporation of
India Ltd in the year 1983.
Competitive Forces
A couple of years ago, a complete survey was conducted by New India Assurance to
start credit insurance. Large business houses were approached by them mainly in North
and Western Zones. Due to lack of expertise in credit insurance, non cooperation of
venture partner and teething problems in handling export customers still New India
Assurance is in a very low profile. It is a breathing time for them to consolidate their
strength and strike back. ICICI also has started its credit insurance business as a part of
ICICI Prudential Insurance division. Its core competency is in banking, since it has
achieved the growth of 366 percent during the last financial year. It is so aggressive in
opening offices in every nook and corner of the country. It may develop a system for
credit insurance and appoint one or two members in all the branches for credit
insurance. Therefore, ECGC has to go on war footing in order to sustain its current
position.
Policy from the Ministry of Commerce
The Ministry of Commerce, Government of India has taken un-precedent steps to
enable exporters move fast to grab markets. India’s balance of payment position is
positive with many countries this year which includes China. Focus Sub-Saharan
Africa, Focus Latin America and Focus CIS programs introduced by Commerce
Ministry have yielded good results over the past five years. The
Government is also on the verge of passing SEZ bill and it will become healthy,
authentic and practical guidelines for many developers of SEZ and prospective units
operating in the Zones. ECGC advantage:
I. Insurance as a field at macro level is becoming vibrant now.
II. Though credit insurance is the focus on exporters, there is a change in the
awareness level from the past to present.
III. ECGC is becoming closer to customers by opening branches, conducting
programs through promotional councils and meeting with banks.
IV. Optional products are available from ECGC for exporters to choose the right
product suitable to their business.
V. ECGC is becoming more of a financial facilitator in the recent past from its
traditional concentration on risk coverage.
HOW TO OBTAIN A POLICY?
? The exporter has to send a duly filled policy proposal form along with a draft or cheque
of Rs. 10,000 as the minimum premium to the ECGC branch.
? The exporter then has to obtain a credit limit for each of his buyers. The credit limit is the
indicative of safe amount of credit that can be extended to the buyer. The proposal for
credit limit is to be given in Form144 along with a draft or cheque of Rs. 500. This limit
can also be extended.
? ECGC in partnership with its agencies abroad decides the credit worthiness of the buyer
and accepts or rejects the credit limit.
? After obtaining the credit limit the exporter has to furnish the details of the exports made
to each buyer every month. This report has to be submitted on or before 15
th
of the next
month.
? The premium on each transaction is charged according to the terms of payment of the
transaction.
? The advance premium is adjusted from the monthly premium. The exporter must pay the
premium in advance. There must be a minimum of Rs. 10,000 in the exporter’s advance
premium at any given point of time. The advance premium is either reimbursed after the
end of policy period or carried forwarded if the policy continues.
ROLE OF ECGC IN EXPORT
Export Credit Guarantee Corporation (ECGC) of India Limited, set up by the Govt. of India in
1957, strengthens the export promotion drive by covering the risk of exporting on credit.
Being essentially an export promotion organization, it functions under the administrative control
of the Ministry of Commerce & Industry, Department of Commerce, Government of India. It is
managed by a Board of Directors comprising representatives of the Government, Reserve Bank
of India, banking, insurance and exporting community.
ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The
present paid-up capital of the company is Rs.800 crores and authorized capital Rs.1000 crores.
The types of insurance protection provided by ECGC include:
? a range of credit risk insurance covers to exporters against loss in export of goods and
services
? guarantees to banks and financial institutions to enable exporters to obtain better facilities
from them
? Overseas Investment Insurance to Indian companies investing in joint ventures abroad in
the form of equity or loan.
What does ECGC do?
? Offers insurance protection to exporters against payment risks
? Provides guidance in export-related activities
? Makes available information on different countries with its own credit ratings
? Makes it easy to obtain export finance from banks/financial institutions
? Assists exporters in recovering bad debts
? Provides information on credit-worthiness of overseas buyers
? Provides names and addresses of prospective buyers in the overseas markets
? Provides a range of credit risk insurance covers to exporters against loss in export of
goods and services.
? Offers Export Credit Insurance for Bankers and financial institutions to enable exporters
to obtain better facilities from them.
? Provides Overseas Investment Insurance to Indian companies investing in joint ventures
abroad in the form of equity or loan.
Need for Export Credit Insurance
Payments for exports are open to risks even at the best of times. The risks have assumed large
proportions today due to the far-reaching political and economic changes that are sweeping the
world. An outbreak of war or civil war may block or delay payment for goods exported. A coup
or an insurrection may also bring about the same result. Economic difficulties or balance of
payment problems may lead a country to impose restrictions on either import of certain goods or
on transfer of payments for goods imported. In addition, the exporters have to face commercial
risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer
going bankrupt or losing his capacity to pay are aggravated due to the political and economic
uncertainties. Export credit insurance is designed to protect exporters from the consequences of
the payment risks, both political and commercial, and to enable them to expand their overseas
business without fear of loss.
Cooperation agreement with MIGA (Multilateral Investment Guarantee Agency) an arm of
World Bank. MIGA provides:
1. Political insurance for foreign investment in developing countries.
2. Technical assistance to improve investment climate.
3. Dispute mediation service.
Under this agreement protection is available against political and economic risks such as transfer
restriction, expropriation, war, terrorism and civil disturbances etc...
Major Products and Services offered by ECGC include:
? Credit Insurance Policies o SCR or Standard Policy
? Turnover Policy o Small Exporters Policy
? Buyer-wise Policy
? Specific Shipment Policy (Short Term)
? Specific Policy for Supply Contract
? Insurance Cover for Buyer’s Credit and Line of Credit
? Service Policy
? Construction Works Policy
? Maturity Factoring
? Guarantees to Banks o Packing Credit Guarantee
? Export Production Finance Guarantee
? Post-Shipment Guarantee
? Export Finance Guarantee
? Export Performance Guarantee
? Export Finance (Overseas Lending) Guarantee
? Special Schemes
? Transfer Guarantee
? Overseas Investment Insurance
? Exchange Fluctuations Risk Cover
Board Of Directors
Chairman cum Managing Director
Shri N Shankar
Chairman cum Managing Director
ECGC of India Limited,Mumbai
Directors - Government of India
Shri Arvind Mehta
Joint Secretary
Department of Commerce
Ministry of Commerce & Industry,
Govt. of India,
New Delhi
Shri P. K. Mishra
Joint Secretary
Department of Economic Affairs,
Ministry of Finance,
Govt. of India,
New Delhi
ORGANISATION STRUCTURE
Code of Ethics
PRELIMINARY
This code shall be called the Code of Ethics and Business Conduct for ECGC Employees. It
shall be applicable to all employees of ECGC.
This Code supplements the various laws and regulations applicable to ECGC, as also its
internal policies, guidelines and CDA (Conduct, Discipline and Appeal) Rules, compliance
with which is mandatory and violations punishable as prescribed.
ETHICAL CONDUCT - GENERAL EXPECTATIONS
This code is a set of guidelines for ethical corporate and individual behavior in conduct of
business and discharge of duties.
The underlying values, principles and norms for such ethical conduct include, Among others,
honesty, integrity, professionalism, fairness, accountability, credibility, diligence, respect for
others, a sense of responsibility to the job, loyalty to the Corporation, primacy of Corporation's
interests over personal interests, respect for the law, staying above the temptation to utilize
official position or knowledge for Personal gain, and a strong personal sense of right and
wrong.
WORKPLACE RESPONSIBILITY
In addition to adhering to the basic values and principles underlying ethical behavior,
employees should also strive to abide by the principles of respect for all persons including
those juniors/subordinate to them or who are less advantaged;
respect for individual dignity and rights; non-discrimination on the grounds of race, ethnicity,
caste, marital status or gender; and maintaining a work environment free of sexual harassment
or exploitation.
It is incumbent upon the employees of ECGC to treat all those who deal with them with
courtesy and respond to their queries or legitimate requests positively and on a timely basis.
Any misuse of one's position as ECGC employee to seek or accept any gratification for doing
what is a part of the employee's duty is clearly illegal and unethical and must be punished by
the company appropriately. The same must also apply to any employee offering any
gratification to anyone, or bringing extraneous pressure, for seeking any undue favor.
It is the responsibility of every employee to bring to the notice of appropriate authorities any
violation of rules, regulations or codes of conduct, which they should do in a manner as may be
prescribed by the company. However, it is also important that this facility is not misused to
wrongfully harm someone and such misuse must also be punished by the company
appropriately.
Every employee should ensure at all times the integrity of the data/information furnished by
him/her to the company or to the auditors/regulators/authorities.
FAMILIARISATION WITH RELEVANT LAWS, REGULATIONS, POLICIES,
RULES ETC AND REGULATORY COMPLIANCE
It is expected that all employees would study and familiarize themselves with laws, regulations
and guidelines/standards issued by regulators that are relevant to their work and ensure that
they are complied with where they are responsible for doing so on behalf of the company
or/and in their personal capacity.
They should also be familiar with the policies; rules etc. of the company, and follow them as a
matter of course.
They should discharge their duties in this regard in a truthful, accurate, diligent and timely
manner.
PROTECTING ASSETS OF THE COMPANY
It is the responsibility of all employees to ensure that all the assets of the company, tangible
(such as machinery, equipment, systems, facilities, computers, vehicles, materials etc) as
also intangible (such as information and communications systems and technology, proprietary
information, relationships, brand equity and intellectual property etc) must be used in the
interest of the company, for the conduct of business and the purpose for which they have been
provided and to prevent any misuse or misappropriation for personal or unauthorized use.
CONFLICT OF INTEREST
Every employee must act in the best interest of the company and ensure that any business or
personal association which he/she may have does not involve a conflict of interest with the
operations of the company and his/her role therein.
A conflict of interest, actual or potential, may arise where, directly or indirectly an employee,
(i) Is unable to exercise an independent and unbiased judgment of the best interests of the
company in view of his/her personal interest, or that of close relatives/associates, being
involved or could be perceived to be involved;
(ii)Knowingly engages in a business relationship or activity with anyone who is a party to a
transaction with the company;
Is in a position to derive an improper benefit, personally or to any or his/her
relatives/associates, by making or influencing decisions relating to any transaction;
In situation where some historic conflict of interest exists, or where an inadvertent conflict or
potential conflict comes to the notice of the employee, it must be reported immediately to the
superiors.
In situations of doubt about the likelihood of a conflict/potential conflict of interest,
The employee must disclose the matter to the superiors and seek clearance /directions.
CONFIDENTIALITY OF CORPORATION RELATED INFORMATION
Subject to the Code of Corporate Disclosure Practices or any other relevant
policy/instructions on disclosures to outside parties that may be prescribed in the company,
information regarding the business should be treated as confidential and should not be shared
with anyone within and outside the company, formally or informally, unless authorized to do
so, and only to those authorized to receive it, with suitable safeguards as feasible, to prevent
misuse of the information. Information and data relating to, but not limited to, areas like
financial performance and results, asset revaluations, investment plans/decisions, business
strategies, marketing plans, sales or contracts, customer lists and details, proprietary, pricing
or costing data etc should be treated as confidential and not disclosed without proper
authorization, while the employee is in service and even subsequently.
In situations where the performance of a specific job inherently requires sharing of
information, including that of otherwise confidential nature (for example with auditors, board
committees, regulators etc.) or where certain information needs to be provided under the law,
regulations or in the course of any official enquiry/query, or in similar situations, appropriate
authorization should be obtained.
Even in situations where some information relating to the business may be in public domain, its
disclosure or elaboration should be done only by specifically authorized persons and within the
bounds of the policies and guidelines.
The confidentiality of information pertaining to other entities with which the company has
business dealings should also be equally respected and protected.
PROHIBITION OF USE OF COMPANY RELATED INFORMATION FOR
PERSONAL GAIN
No employee or his immediate family/close associates should derive, or assist anyone else to
derive, any benefit from access to information about the company, or those with whom it does
business, that is not in public domain, and therefore constitutes unpublished and price
sensitive insider information not available to the investing public.
No employee should use or share such information for making or giving advice on making
investment decisions about the securities of the company or of such entities with which it does
business.
The existing laws and regulations on prevention of insider trading should be
followed scrupulously by all employees of the company.
USE OF POSITION IN COMPANY FOR PERSONAL PURPOSES
The employee should not use his official position in the company to obtain any support for
activities in which he/she may be involved in a personal capacity, including those of a non-
commercial nature, e.g. cultural, literary, charity etc., from anyone with whom the company
has business dealings; nor should he/she use of official position, time or resources to pursue
such activities, even if these may be desirable activities per se.
The employee should not seek or accept, directly or indirectly, any gift, donation or
comparable benefits from anyone having business dealing with the company, except as
prescribed under the policy or rules of the company.
CONCURRENT DIRECTORSHIP OR EMPLOYMENT
No employee should accept any directorship or any employment, assignment or position of
responsibility, including consultancy or freelance work irrespective of whether it is with or
without remuneration, in any other company organization without specific approval.
SOCIAL AND ENVIRONMENTAL RESPONSIBILITY
The ECGC is specially committed to issues that go beyond the financial performance of the
company, such as those relating to corporate citizenship, health, safety, education, social,
justice, gender, climate change, and environmental sustainability, to name some. Their
operations and business conduct should, to the extent feasible, benefit the localities and
communities in which they operate, and must not be detrimental to them or to the local
environment.
The employees are responsible not just for carrying out the policies of the company in this
context as a part of their duties, but should also integrate these concerns in their working,
and contribute pro-actively in ensuring that the company operates as a good and responsible
corporate citizen. Where the company operates in different geographies, the company and also
its employees should respect the culture, customs and traditions of each country and region.
Objectives of ECGC
The Corporation has set before itself the following objectives:
1. To encourage and facilitate globalization of India’s trade.
2. To assist Indian exporters in managing their credit risks by providing timely information on
worthiness of the buyers, bankers and the countries.
3. To protect the Indian exporters against unforeseen losses, which may arise due to failure of the
buyer, bank or problems faced by the country of the buyer by providing cost effective credit
insurance covers in the form of Policy, Factoring and Investment Insurance Services comparable
to similar covers available to exporters in other countries.
4. To facilitate availability of adequate bank finance to the Indian exporters by providing surety
insurance covers for bankers at competitive rates.
5. To achieve improved performance in terms of profitability, financial and operational
efficiency indicators and achieve optimum return on investment.
6. To develop world class expertise in credit insurance among employees and ensure continuous
innovation and achieve the highest customer satisfaction by delivering top quality service.
7. To educate the customers by continuous publicity and effective marketing
How does ECGC help exporters?
? Offers insurance protection to exporters against payment risks
? Provides guidance in export-related activities
? Makes available information on different countries with its own credit ratings
? Makes it easy to obtain export finance from banks/financial institutions
? Assists exporters in recovering bad debts
? Provides information on credit-worthiness of overseas buyers
Notable Records of ECGC
? Largest Policy – short term Rs.450 crores
? Largest database on buyers 8 lakhs
? Largest credit limit Rs.80 Crores
? Largest claim paid Rs.120 crores
? Quickest claim paid 2 days
? Highest compensation-Iraq Rs 788 Crores
? On 31.3.2012 ECGC has achieved a magical milestone of Rs.1000 Crores of premium
income......well deserved achievement by the efforts put in by all the officers of the
Corporation. Thanks are due to the parent ministry officials, Export Customers and all
Nationalized and other private Banks.....
ECGC now offers various products for the exporters and bankers. If readymade products are
NOT suited to an exporter/banker then ECGC designs tailor made products.
Objective of the Study
The main objectives of the study are:
1- To analyze the working process of ECGC.
2- To analyze the performance of ECGC.
Scope of the study
In the light of growing need & importance of exports of our country it is of utmost importance
that everyone should have an insight in the field of exports.
In the course of last decade, the export scenario in India has undergone a tremendous change.
The liberalization initiated by the government, the keen competition in the market place & the
rapid increase in the export of services have all combined to change the picture completely. This
project will be covering aspects of export insurance available for exporters and export insurance
available for banks. Areas covered in this project are related to ?export insurance? and it almost
took 2 months in the compilation of this dissertation. I hope that this dissertation would provide
one, some essential information that will be useful to them in future.
Research Methodology
Research shall rely on secondary data collected from various sources the requisite
information and data will be collected from ECGC Sites. The other statistical data and
information will be collected from the ECGC Annual Reports, Various Journal of the
Export Marketing , Annual Report of Bank etc. (if required) information and data
collected from the above mentioned sources will be classified, tabulated and analyzed
according to the objective of the study. Statistical tools like percentage, ratio, and trend
analysis will be utilized to analyze the data of Performance of ECGC, EPG, and CSR
performance of ECGC.
CHAPTER – 2
THE WORKING PROCESS OF EXPORT GUARANTEE CORPORATION
OF INDIA
Export Credit Guarantee Corporation of India Limited (ECGC)
Export Credit Guarantee Corporation of India Ltd. ( ECGC ) is a Government of India Enterprise
which provides export credit insurance facilities to exporters and banks in India. It functions
under the administrative control of Ministry of Commerce & Industry, and is managed by a
Board of Directors comprising representatives of the Government, Reserve Bank of India,
banking, insurance and exporting community. Over the years, it has evolved various export
credit risk insurance products to suit the requirements of Indian exporters and commercial banks.
ECGC is the seventh largest credit insurer of the world in terms of coverage of national exports.
The present paid up capital of the Company is Rs. 1000 Crores and the authorized capital is Rs.
1000 Crores.
Functions of ECGC
? Provides a range of credit risk insurance covers to exporters against loss in export of
goods and services,
? Offers guarantees to banks and financial institutions to enable exporters obtain better
facilities from them,
? Provides Overseas Investment Insurance to Indian companies investing in joint ventures
abroad in the form of equity or loan.
ECGC Provides
? offers insurance protection to exporters against payment risks
? provides guidance in export-related activities
? makes available information on different countries with its own credit ratings
? makes it easy to obtain export finance from banks/financial institutions
? assists exporters in recovering bad debts
? information on credit-worthiness of overseas buyers
The covers issued by ECGC can be divided broadly into four groups:
1. Standard Policy Shipments (Comprehensive Risks) Policy, which is commonly known
as the Standard Policy, is the one ideally suited to cover risks in respect of goods exported on
short term credit; i.e. credit not exceeding 180 days. The policy covers both commercial and
political risks from the date of shipment.
2. Other Specific Policies Specific Policies are designed to protect Indian firms against
payment risks involved in a) exports on deferred terms of payment b) services rendered to
foreign parties and c) construction works and turnkey Projects undertaken abroad. These policies
are issued separately for each specific contract, and cover risks normally from the date of
contract.
ECGC provides for an insurance cover named as Construction Works Policy to provide cover
to an Indian contractor who executes a civil construction job abroad.
3. Financial Guarantees Financial Guarantees are issued to banks in India to protect them from
risks of loss involved in their extending financial support at pre-shipment and post-shipment
stages. These also cover a host of non-fund based facilities that are extended to exporters.
Export Performance Guarantee Export Performance Guarantee is an insurance cover for
banks, which issues various kinds of guarantees on behalf of exporters in order to facilitate
export transactions.
4. Special Schemes Transfer Guarantee meant to protect banks which add confirmation to
Letters of Credit opened by foreign banks, Insurance cover for Buyers Credit and Lines of
Credit, and Exchange Fluctuation Risk Insurance.
ECGC Whole Turnover Post-shipment(ECGC-WTPS) Guarantee Scheme
The Whole Turnover Post-shipment Guarantee Scheme of the Export Credit Guarantee
Corporation Ltd. (ECGC) provides protection to banks against non-payment of post-shipment
credit by exporters. Banks may, in the interest of export promotion, consider opting for the
Whole Turnover Post-shipment Policy. The salient features of the scheme may be obtained from
ECGC.
As the post-shipment guarantee is mainly intended to benefit the banks, the cost of premium in
respect of the Whole Turnover Post-shipment Guarantee taken out by banks may be absorbed by
the banks and not passed on to the exporters.
Where the risks are covered by the ECGC, banks should not slacken their efforts towards
realization of their dues against long outstanding export bills.
Overseas Investment Insurance
ECGC has evolved a scheme to provide protection for Indian investments abroad. Any
investments made by way of equity capital or untied loan for the purpose of setting up or
expansion of overseas Projects will be eligible for cover under investment insurance.
The investments may be either in cash or in the form of export of Indian capital goods and
services. The cover will be available for the original investment together with annual dividends
or interest receivable.
The risks of war, expropriation and restriction on remittances are covered under the schemes. As
the investor would be having a hand in the management of the joint venture, no cover for
commercial risks would be provided under the scheme. For investment in any country to qualify
for investment insurance, there should preferably be a bilateral agreement protecting investment
of one country in the other. ECGC may consider providing cover in the absence of any such
agreement provided it is satisfied that the general laws of the country afford adequate protection
to the investments.
The period of insurance cover would not normally exceed 15 years. In case of Projects involving
long construction periods, cover may be extended for a period of 15 years from the date of
completion of the Project subject to a maximum of 20 years from the date of commencement of
the investment. Amounts insured shall be reduced progressively in the last five years of the
insurance period.
ECGC's SCHEMES FOR PROJECT EXPORTS
Export of capital goods on deferred payment terms and execution of turnkey Projects,
construction works contracts as also rendering of services abroad are collectively referred to as
Project exports. As these transaction are not of repetitive nature and they involve medium / long
terms credit, ECGC's insurance cover for such transactions are provided on a case to case basis
under Specific Policies. Normally these contracts are of very high value and involve longer
credit period. The country / political risks involved in such transactions are unpredictable in view
of long credit period involved. Although in' most cases the overseas buyers are the government
or semi government organizations, there is a need for ECGC cover to safeguard the payment
risks. In many cases these contracts are funded by International Financial Institutions and
payments are secured under UC or bank guarantee. There are cases where even government or
central bank guarantees are available safeguarding payments. However, the elements of political
risk such as war, civil disturbances, exchange transfer delay etc. are existent in all these cases
despite having payment security as stated above. In order to protect such exporters ECGC has the
following types of covers.
1. For covering supply contracts and Turnkey Projects Specific Contract / Shipments Policy can
be taken. This Policy can be for covering only political risks or for covering comprehensive risks
i.e. both commercial and political risks.
2. For covering construction contract, a Construction Works policy can be obtained. This policy
can be for either Political Risks alone or for Comprehensive Risks. The Comprehensive Risks
Policy provides protection against commercial risks such as Insolvency of Buyer, protracted
default, non-acceptance of goods shipped in addition to covering political risk of war, civil war,
exchange transfer delay etc. The political risk policy on the other hand provides protection
against political risk policy.
3. For covering services contract, which involves only technical and / or professional services, a
Services Policy can be obtained. This also can be either for political or comprehensive risks.
In addition to the policy covers, which are issued to exporters, ECGC also extends its guarantee
support to banks in India against both funded and non funded facilities extended to Project
Exporters. The types of guarantees issued by Indian bank are:
1] Funded:
[a] Packing Credit
Post Shipment
[c] Overdraft
[d] Rupee Loan
2] Non - Funded
[a] Bid Bond
Advance payment
[c] Performance guarantee
[d] Retention Money guarantee
[e] Overseas Lending Finance guarantee
ECGC's counter guarantee can be obtained by banks in India to protect them against any loss
that they may sustain owing to invocation of the above guarantees.
Risk Covered : insolvency of the exporter/ protracted default of the exporter
Percentage of Loss : 75% TO 90% Covered
Rate of Premium : 0.80 Paise per Rs.100/- p.a. & 0.95 paise per Rs.100% p. a.
As per RBI's recent directive, no pre-bid approval from authorized dealer, EXIM Bank or
Working Group is required to be taken by Project exporters. Only post-award approval is
required to be taken. However, it would be in the interest of Project exporters to obtain 'In -
Principle' clearance from their bankers and ECGC assuring them of support in the event of their
securing the contracts.
ECGC's approval of Project exports and services contracts is based on the following
aspects:-
(i) The capacity of the Project exporter to carry out large value contracts - technical, professional
and managerial, and their past experience in the line of business.
(ii) Country to which the exports are to be made - stability of political set-up / government,
soundness of economy, payment records, relations with IMF, World Bank & other International
Financial Institutions & Donor countries.
(iii) Overseas contract / Project - value, type of Project, whether cleared by local authorities,
profitability.
(iv) Buyer / employer - private / government.
(v) Payment terms & security, rate of interest for deferred receivables.
(vi) ECGC's underwriting policy on the country and its experience, whether any transfer delay
experienced.
(vii) Berne union experience - whether the credit period offered is in line with Berne union
understanding.
(viii) Reinsurance back-up available or not.
(ix) Whether need for covering the contract under National Export Insurance Account set-up by
Government of India.
Buyer's Credit / Line of Credit cover:
Financial institution in India extend Buyer's Credit / Lines of Credit to overseas buyers /
institutions to facilitate export of goods & services from India. Institutions like Exim Bank,
SIDBI etc. often seek ECGC for Buyers Credit / Line of Credit cover. Buyers Credit / Line of
Credit cover can be obtained either for covering political risks or for comprehensive risks.
Factors weighing approval of Buyers Credit proposals are:
a) Competence and capacity of exporter in executing the contract.
b) Commercial justification of the contract.
c) Economic viability of the overseas Project for which credit is required to be offered.
d) Credit worthiness, standing and financial position of foreign buyers and general economic
conditions of the Buyers country.
Lines of Credit are generally extended by Exim Bank of India to Financial
Institutions/Governments in Overseas Countries facilitating export of consumer goods and
capital goods.
Overseas Investment Insurance (OII) cover:
OII provides cover for the investments made by Indian corporate abroad in Joint Venture or their
wholly owned subsidiary (WOS) either in the form of equity or loan. Government of India or
RBI should approve the Joint Venture. The basic principle is that the investment should emanate
from India and benefit of dividend / interest there from should accrue to India. The investment
should not in any way conflict with the policy of both our government and the overseas
government. Normally, there should be a bilateral agreement between India and the host country
for promotion and protection of Indian Investment. In case there is no such agreement the
Corporation should be satisfied that the existing laws of the host country adequately safeguard
Indian Investment.
Exchange Fluctuation Risk Cover
The Exchange Fluctuation Risk Cover is intended to provide a measure of protection to exporters
of capital goods, civil engineering contractors and consultants who have often to receive
payments over a period of years for their exports, construction works or services. Where such
payments are to be received in foreign currency, they are open to exchange fluctuation risk as the
forward exchange market does not provide cover for such deferred payments.
What are the terms of the Exchange Fluctuation Risk Cover?
Exchange Fluctuation Risk Cover is available for payments scheduled over a period of 12
months or more, up to a maximum of 15 years. Cover can be obtained from the date of bidding
right up to the final installment. At the stage of bidding, an exporter/contractor can obtain
Exchange Fluctuation Risk (Bid) Cover. The basis for cover will be a reference rate agreed upon.
The reference rate can be the rate prevailing on the date of bid or rate approximating it. The
cover will be provided initially for a period of twelve months and can be extended if necessary.
If the bid is successful, the exporter/contractor is required to obtain Exchange Fluctuation
(Contract) cover for all payments due under the contract. The reference rate for the contract
cover will be either the reference rate used for the Bid Cover or the rate prevailing on the date of
contract, at the option of the exporter/contractor. If the bid is unsuccessful 75 percent of the
premium paid by the exporter/contractor is refunded to him.
Types of Investment:
The overseas investment may be made either by way of equity or by way of loans
Equity
Any contribution made to the enterprise in return for shares either by cash remittances or by way
of export of capital goods or services can be covered. Any fees payable towards technical know-
how, consultancy or management services etc. and agreed to be converted into capital will be
considered for cover at the discretion of the Corporation.
Loans:
Loans advanced by way of a formal agreement but not tied to export of goods and supplies are
eligible for cover. Any 'suppliers / buyers' credits and lines of credit extended to support sale of
goods or services from India may be covered under the appropriate insurance schemes of the
Corporation and not under investment insurance.
Dividend and Profit
In case of equity the investor can choose to cover the original investment as well as his share of
retained earnings and dividends declared, to the extent they are eligible for repatriation. Cover on
account of original investment, retained earnings, dividend receivable and any additional
investment will be subject a ceiling of 150% of the original investment calculated as in the
proceeding paragraphs. In case of loan, the insurance will cover the principal as well as interest
actually earned.
Portfolio Investment:
Any investment in shares of overseas concerns not related to setting up, development and
expansion of overseas Projects will not be eligible for cover under the investment insurance.
Additional Investment:
Additional investment can be covered subject to a ceiling of 50% of the original investment. Any
additional investment out of retained earnings should have been made by formal capitalization
and for the purpose of expansion for development of the enterprise. If the additional investment
is made out of retained profits, which are not eligible for repatriation such as investment will not
be eligible for cover. Initially cover is issued for 3 years. On expiry of the 3 years it is at the
option of the exporter to renew the cover / review of the JV / WOS by ECGC. The duration of
insurance cover shall not normally exceed 15 year but extension can be given upto 20 years for
longer Projects. The amount of investment eligible for cover shall be to the full extent during the
first 10 years of cover. Percentage of cover is 90 - can be reduced. The amount of investment
eligible for cover will be reduced to 90%, 80%, 70%, 60% and 50% respectively of the original
investment during the 111", 121", 13
th
, 14t
h
and 15
th
years of insurance. OII provides cover for
original investment retained earnings, dividend receivables and additional investment upto 50%
of the original investment. Cover for dividend receivables may not be given in case of risky
countries; cover only for original investment. OII covers only political risks of war,
expropriation and restrictions on remittances.
Premium Rate
Base rate 2.5% of the investment value. Actual premium rate will be depending on size of
Investment, country of the investment, previous experience of the Importer etc.
The exporter has to furnish proposal form along with fee of Rs.01 % of the investment amount
subject to ceiling of Rs.25, 000/- if cover is agreed application fee paid shall be adjusted towards
premium payable. In case, the application for insurance is rejected, half the fee paid shall be
refunded. Premium is taken up front. Income from the premium is allocated over the tenor of the
cover extended. Installment facility is provided by ECGC for collecting premium after analyzing
and approving the proposal.
ECGC enters into agreement with the exporters for providing cover mentioning the terms and
conditions along with the maximum liability. The exporters have to submit annual report about
the progress and working of the Project.
NEW INITIATIVES
ECGC has since revised its premium structure providing substantial reduction in the rates both
for short term as well as for medium and long term contracts. This will go a long way in
providing cost effective credit insurance support to Project exporters which in turn will enable
them to compete effectively for international tenders.
In order to increase Project exports and to encourage Project exporters Govt. of India have
initiated various steps. Institutions like ECGC and Exim Bank are being strengthened to provide
adequate support to Project exporters. The National Export Insurance Account (NEIA) has been
set up by the Government of India to provide credit insurance support to exporters where ECGC
is not in a position to do so due to its own underwriting constraints and where the export is
strategically important in the long term interests of the country.
Construction Works Policy
Construction Works Policy is designed to provide cover to an Indian contractor who executes a
civil construction job abroad.
Two types of policies have been evolved to cover contracts with
Government Buyers and Private Buyers. The former covers political risks in respect of contracts
with Overseas Governments or where Government and the latter comprehensive risks guarantee
the payments. In case of contracts with private employers, the policy may be issued to cover
only political risks if the payments are guaranteed by a bank or covered by L/C.
The distinguishing features of a Construction Contract are that (a) the contractor keeps raising
bills periodically throughout the Contract period for the value of work done between one billing
period and another ; (b) to be eligible for payment, the bills have to be certified by a consultant
or supervisor engaged by the Employer for the purpose and (c) that, unlike bills of exchange
raised by suppliers of goods, the bill raised by the contractor do not represent conclusive
evidence of debt but are subject to payment in terms of the Contract which may provide, among
other things, for penalties or adjustments on various counts. The scope for disputes is very large.
Besides, the Contract value itself may only be an estimate of the work to be done, since the
Contract may provide for cost escalation, variation contracts, additional contracts, etc. It is,
therefore, important that the Contractor ensures that the Contract is well drafted to provide
clarity of the obligations of the two parties and for resolution of disputes that may arise in the
course of execution of the contract. Conditions of Contract (International) prepared by the
Federation International Des Ingenious Councils (FIDIC) jointly with the federation International
du Batiment et des Travaux Publics (FIBTP).
The Construction Works Policy of ECGC is designed to protect the Contractor from 85%
of the losses that may be sustained by him due to the following risks:
1. insolvency of the Employer (when he is a non — Government entity);
2. Failure of the Employer to pay the amounts that become payable to Contractor in terms of the
Contract, including any amount payable under an arbitration award;
3. Restrictions on transfer of payments from the Employer’s country to India after the Employer
has made the payments in local currency;
Failure of the Contractor to receive any sum due and payable under the Contract by reason of
war, civil war, rebellion etc;
5. The failure of the Contractor to receive any sum that is payable to him on termination or
frustration of the Contract if such failure is due to its having become impossible to ascertain the
amount or its due date because of war, civil war, rebellion etc;
6. Imposition of restrictions on import of goods or materials (not being the Contractor’s plant or
equipment) or cancellation of authority to import such goods or cancellation of export license in
India, for reasons beyond his control; and
7. Interruption or diversion of voyage outside India, resulting in his incurring in respect of goods
or materials exported from India, of additional handling, transport or insurance charges which
cannot be recovered from the Employer.
Risks not covered
The Construction Work Policy excludes from its purview losses which may be sustained due to
the following causes:
1. Failure of the Contractor and/ or the Employer (where the Employer is not a government) to
obtain, issue or deliver any authority necessary under the law of India or the Employer’s country
for execution of the Project and to make payment thereof;
2. Risks which can normally be insured with commercial insurers;
3. Insolvency, default or negligence of any agent, seller or sub-contractor;
4. execution of any works or incurring of any expenses by the Contractor after the Employer has
been in default in making any payment for a period of 120 days unless, on an application made
by the Contractor for the purpose within 90 days of such default, the corporation has agreed to
his continuing execution of the contract despite the said default of the Employer;
5. Execution of any works or incurring of any expenses by the Contractor after the estimated date
for completion of the contract unless, at the request of the Contractor, the Corporation has
agreed to a change in such date.
Premium
Premium rate will be dependent on the classification of the Employer’s country and the payment
terms and will be quoted by the Corporation on request. The rate will be applied on the
Estimated Contract value to arrive at the amount of premium payable to the Corporation and this
amount of premium is payable in advance. The Contractor is obliged to notify the Corporation if
the estimated contract value undergoes any change and the premium will be adjusted
accordingly.
Declaration
The Contractor is required to submit to the Corporation such periodical declarations as may be
prescribed by it relating to the execution of the contract and the position of payments there
under.
Ascertainment of Loss
When a loss arises due to any of the risks insured, the amount of loss shall be ascertained by the
Corporation, after the Contractor files a claim under the Policy, in accordance with the
provisions of clause 16 of the Policy. It should, however, be noted that, where the Contractor
has been simultaneously executing certain other contracts also for the same Employer, all
amounts paid by the Contractor shall be allocated to the amounts outstanding under all the
Contracts in the chronological order of the due dates of payment of those amounts, irrespective
of whether such other contracts have been insured by the Corporation or not.
Payment of Claim
If a claim is admitted under the Policy, the Corporation shall make payment of the amount direct
to the Contractor’s bank in India which may have a right or lien over the receivables under the
Contract. The payment shall be subject to the Contractor giving the Corporation an undertaking
to the effect that he will take all steps, including such steps as may be suggested by the
Corporation, to recover the dues from the Employer and to pass on the Corporation its share of
the amounts so recovered. The Contractor shall, if required to do so, support such an
undertaking with a bank guarantee for an amount equal to the amount of claim. The amount of
claim paid by the Corporation shall become refundable to the Corporation with interest if the
Contractor fails to take steps for effecting recovery.
Exchange rate for the purpose of Cover, Claim and Recovery
The liability of the Corporation under the Policy will be in terms of Indian Rupee. If the contract
value is expressed in a foreign currency, it shall be converted into Indian Rupees at the rate
specified in the Policy, the rate being approximately the same as the Bank Buying Rate of
Exchange on the date of contract, for the purpose of determining the amount covered and the
Maximum Liability of the Corporation under the Policy.
The same exchange rate shall be used by the Contractor for the purpose of submitting periodical
declarations to the Corporation. However, if the currency in which the Employer has to pay been
devalued before a claim is paid by the Corporation, the amount claimed by the Contractor in
Indian Rupees shall be based on the devalued rate. Recoveries will be reckoned, net of recovery
expenses at the actual rate at which the amounts recovered were converted by the receiving bank
into Rupees and such amounts shall be divided between the Corporation and the Contractor in
the same ratio in which the loss was originally borne by the two, irrespective of whether or not
such division results in the Corporation retaining an amount greater or lesser then the amount
paid by to as claim.
Note: The services offered by ECGC are in the nature of credit insurance products. It would be
necessary for the interested persons to consult ECGC for ascertaining specific terms of cover.
SPECIFIC POLICIES FOR SUPPLY CONTRACTS
The Standard Policy is a whole turnover policy designed to provide a continuing insurance for
the regular flow of an exporter's shipments for which credit period does not exceed 180 days.
Contracts for export of capital goods or turnkey Projects or construction works or rendering
services abroad are not of a repetitive nature and they involve medium/long-term credits. Such
transactions are, therefore, insured by ECGC on a case-to-case basis under specific policies.
All contracts for export on deferred payment terms and contracts for turnkey Projects and
construction works abroad require prior clearance of Authorized Dealers, EXIM Bank or the
Working Group in terms of powers delegated to them as per exchange control regulations
(Kindly refer to 'Projects Exports Manual' of Reserve Bank of India. For further details go to
http://www.rbi.org). Applications for the purpose are to be submitted to the Authorized Dealer
(the financing bank), which will forward applications beyond its delegated powers to the EXIM
Bank. Proposals for Specific Policy are to be made to ECGC after the contract has been cleared
by the Authorized Dealer, EXIM Bank or the Working Group, as the case may be.
The different policies are:
1. Specific Shipment (Comprehensive Risks) Policy;
2. Specific Shipments (Political Risks) Policy;
3. Specific Contract (Comprehensive Risks) Policy; and
4. Specific Contract (Political Risks) Policy.
Specific Shipments (Comprehensive Risks) Policy provides cover against all the risks covered
under the Standard Policy for shipments to be made under the contract in question (For details of
risks, click here). It is, therefore, the appropriate policy for an exporter to take if the payments
are open to both commercial and political risks. Where the Commercial risks are absent, e.g.
where the payments are guaranteed by a bank or by the Government of the overseas country, the
exporter may opt for the Specific Shipments (Political Risks) Policy for which the premium rate
will be lower than that for the Comprehensive Risks Policy.
Specific Contract Policy (which also can be for comprehensive or political risks) differs from
Shipments Policy in that the former provides the exporter not only with the post-shipment cover
like the latter but also with some pre-shipment cover from the date of contract. In case shipments
could not be made due to any of the risks covered or due to restriction on export of the goods
from India, the loss in respect of unshipped goods will also be covered under Contract Policies.
Premium rates for Contract Policies will be higher than that for Shipment Policies.
Terms of payment
To be eligible for cover under specific policies, the terms of payment for the export contracts
should be in line with customary practices in the international markets. At least, 15% of the
contract value should be payable before shipment including an advance payment of at least 5%.
The balance amount should be repayable in equal semi-annual installments commencing six
months after the date of shipment. Where the contract provides for supply and erection of a
complete plant, the first installment may fall due after six months from the date of
commissioning of the plant. The credit period should not normally exceed 5 years. Longer credit
period may be approved only in the case of exceptionally large Projects if the circumstances of
the case justify it. Adequate security should be obtained in the form of government or bank
guarantee.
Applicable premium rates
The premium rates will depend on the country to which exports are to be made and the
repayment period. To find out the premium payable for any particular contract, In order to be
sure about the availability of the cover, exporters are advised to get in-principle approval of
ECGC and obtain the premium rates well before concluding contracts. If the terms and
conditions of the contract undergo any change subsequently, ECGC should be informed of the
same, so that changes, if any, in the applicable premium rates can be ascertained.
When is the premium to be paid?
The entire premium is normally payable in advance. Installment facility may be granted for
payment of a part of the premium if the contract value is very large and if the shipments are
spread over a relatively long period, but the entire premium will have to be paid by the time the
last shipment is made. Interest will be charged for the installment facility.
Export Credit Insurance for Banks
The scheme of export financing by the Banks was introduced in 1967. The financial assistance
was provided by Banks to the exporters at two stages. The first was by way of Packing Credit
(PC) for working capital to purchase raw material, processing, packing and warehousing of
goods meant for export. The second stage namely, Post Shipment (PS) finance was provided by
the Banks against the shipping documents after liquidating the PC advances.
These advances to the exporters for PC and PS by the Banks had a risk of default and such a
default would add to the Non-Performing Assets (NPA) of the Banks. The whole turnover covers
offered by the Company protected the Banks against the default by the exporter who had availed
PC or PS credit. The Banks were to be reimbursed at different rates varying from 50 to 95 per
cent of the advances outstanding depending on the terms and conditions of the covers.
The Whole Turnover PC/PS (WTPC/WTPS) covers issued to the Banks automatically covered
all the advances given to the exporters except those with previous history of default. In other
words, the Banks got insurance cover for the advances extended to all the exporter/account
holders who were regular in servicing their debt. In case of any fresh default by such exporters,
the Banks got the money back from the Company. In effect, these defaults did not increase the
NPA of the Banks.
Under the capital adequacy framework (BASEL requirement), Banks were to provide a
minimum capital of 9 per cent on their risk weighted assets. However, the PC and PS advances
against which insurance cover was given by the Company to the Banks were treated as risk free
to the extent of 80 per cent. Thus, the Banks were required to meet the capital requirement for
the balance of 20 per cent of the outstanding dues, which translated to 1.80 per cent only.
The Company’s main ECIB business came from WTPC and WTPS as together they constituted
75-78 per cent of the total ECIB premium and 64-96 per cent of total ECIB claims during the
five years ending 31 March 2011.
Higher net claims affect the profitability of the Company adversely. During the last five years
period, the premium under WTPC was more than the net claims and hence WTPC generated
surplus. This would mean that the Company gained from the covers insuring
pre-shipment advances by the Banks. WTPS generated surplus only during 2006-07 to 2008-09.
However, due to a sudden surge in claims under WTPS, which cover post- shipment advances by
the Banks, it turned out to be loss making during 2009-10 and 2010-11. Also, while the
recovery9 under WTPC was 64.71 per cent of the claims, it was only 20.18 per cent of the claims
under WTPS.
Detailed scrutiny of these two products during the period 2008-09 to 2010-11 indicated that the
Company issued 108 WTPC covers to 36 Banks and 92 WTPS covers to 31 Banks (five Banks
did not avail WTPS covers). A review of 102 covers issued to 3410 Banks under WTPC and 86
covers issued to 29 Banks under WTPS showed that there was a profit of ` 665.78 crore under
WTPC and a loss of ` 191.72 crore under WTPS during the above period. An analysis of the
losses posted by the Company under WTPS during the three year period indicated that many of
the claims could have been avoided had the Banks observed due diligence and enforced the
compliance to their sanction conditions. The Company did not enforce observance of prudence
by Banks through enabling provisions in its covers and paid claims despite their adverse effects
on its finances as discussed in the ensuing paragraphs.
The Ministry in its reply (June 2012) stated that:
• Historically, the claim incidence was always under WTPC, the situation under WTPS was
adverse since 2008 onwards due to global meltdown. There were non- payments by buyers from
developed countries. The loss under WTPS for two years (2009-10 and 2010-11) was only a
temporary aberration due to global crisis and cannot be linked to any flaw in the scheme. •
various measures were taken to bring down the losses under WTPS like requirement of Banks to
take prior approval of the Company in cases of larger exposures under diamond sector,
restriction on limit exposures and percentage covers for iron ore sector and
• Claims were not admitted where Banks had substantially violated their own sanction terms and
conditions.
The reply of the Ministry was in contrast to the following facts:
• An analysis of the data on premium and claims paid during the nine year period 2002-03 to
2010-11 showed that WTPC had always produced surplus (overall ` 1369 crore) with high
recovery performance, while WTPS had sustained losses in five out of nine years (overall net
loss ` 192 crore). Thus, the risk in respect of WTPS was higher as compared to WTPC and
hence needed to be addressed.
• The steps taken by the Company to bring down the losses did not yield the desired effect in
2011-12 also. Out of 177 crore claim pay out in 2011-12 under WTPS, Gems and Jewellery
accounted for ` 163 crore (92 per cent). Another ` 50 crore was outstanding for payment in
2012-13.
2.2.1 Non-loading for adverse claim experience under WTPS
During the period 2008-09 to 2010-11, under WTPC coverage, the Claim Premium Ratio
(CPR)11 was above 200 per cent for 2 out of 34 Banks with a loss of ` 26.62 crore. Contrasting
this, under WTPS, CPR was more than 200 per cent in respect of 13 out of 29 Banks with a loss
of ` 309.27 crore,
There was a surge in claims during 2009-10 and 2010-11 signifying that the exposures taken by
the Company needed to be monitored. The CPR widely varied from Bank to Bank. In fact it
ranged from 973 per cent to (-) 126 per cent in 2008- 09 and from 1202 per cent13 to (-) 12 per
cent in 2009-10. Similarly in 2010-11, the CPR ranged from 1499 per cent to Nil per cent. The
premium in respect of WTPS cover was borne by the Banks and Company’s action to allow the
Banks very high claim ratio, without adequate loading in the premium, resulted in unintended
benefit to them.
It was observed that the Company, while renewing the covers, considered data on premium,
claim paid etc. relating to previous five years without any disincentive for bad performance for
any year and vice versa. This deflated the spikes in the CPR during the two years. In majority of
cases, it was seen that the average CPR for three years (2008-09 to 2010-11) was much higher
than the average CPR of five years (2006-07 to 2010-11). Thus, adoption of five years average
CPR did not have the pinching effect on the Banks to adopt prudent practices to bring down the
claim ratio.
In July 2010, one of the Directors suggested in the meeting of the Board that the Company could
consider differential premium rates for Banks on the basis of their respective CPR, if warranted.
Subsequently, the Company introduced (May 2011) a differential rate of premium, according to
which the premium rate ranging from 5.5 paise to 7.00 paise per ` 100 was to be charged under
WTPS depending upon the CPR.
However, it was observed that even this differential rate structure for WTPS was lower than that
of WTPC which ranged from 6 paise to 10 paise per ` 100. Further, there was no denial of
acceptance of risk for CPR beyond 400 per cent as was there in case of WTPC.
The Company stated (May 2012) that:
• adoption of five year claim ratio was to avoid an increased premium burden on the exporters in
WTPC and the same period was adopted for WTPS for uniformity; • in most of the G-11 and
other countries, the losses on account of export credit insurance were borne by the respective
governments through official Export Credit Agencies to sustain export of their countries and
hence spread of five years was considered logical.
GUARANTEES TO BANK
? EXPORT CREDIT INSURANCE PACKING CREDIT
1. ELIGIBILITY: A bank or a financial institution authorized to deal in foreign
exchange can obtain the Individual Packing Credit Cover for each of its exporter
clients who has been classified as a standard asset and whose CR is acceptable to
ECGC.
2. PERIOD OF COVER: 12 months
3. ELIGIBLE ADVANCES: All packing credit advances as per RBI
guidelines.
4. PROTECTION OFFERED: Against losses that may be incurred in
extending packing credit advances due to protracted default or insolvency of the
exporter-client.
5. PERCENTAGE OF COVER: 66-2/3%.
6. PREMIUM: 12 paise per Rs.100 p.m. on the highest amount outstanding on
any day during the month.
7. MAXIMUM LIABILITY: 66-2/3% of the Packing Credit Limit sanctioned
to the account being covered.
8. IMPORTANT OBLIGATIONS OF THE BANK: Monthly declaration
of advances granted and payment of premium before 10th of the succeeding
month. Approval of the Corporation for extension of due date beyond 360 days
from due date to be obtained. Default to be reported within 4 months from due
date or extended due date of advances, if not recovered, filing of claim within 6
months of the Report of Default. Recovery action after payment of claim and
sharing of recovery.
9. HIGHLIGHTS: Bank can take the cover selectively.
? EXPORT CREDIT INSURANCE-EXPORT PRODUCTION FINANCE
(ECIB-EPF)
1. ELIGIBILITY: Any bank or financial institution authorized to deal in foreign
exchange can obtain the Export Production Finance Cover for each of its exporter
clients who has been classified as a standard asset and whose CR is acceptable to
ECGC.
2. PERIOD OF COVER: 12 months.
3. ELIGIBLE ADVANCES: Advances granted at pre-shipment stage over and
above FOB value.
4. PROTECTION OFFERED: Against losses that may be incurred in
extending packing credit advances to the full extent of cost of production due to
protracted default or insolvency of the exporter-client.
5. PERCENTAGE OF COVER: 66-2/3%.
6. PREMIUM: 12 paise per Rs.100 p.m. on the highest amount outstanding on
any day during the month.
7. MAXIMUM LIABILITY: 66-2/3% of the Packing Credit Limit
sanctioned to the account being covered.
8. IMPORTANT OBLIGATIONS OF THE BANK: Monthly declaration
of advances granted and payment of premium before 10th of succeeding month.
Approval of the Corporation for extension of due date beyond 360 days from due
date to be obtained. Default to be reported within 4 months from due date or
extended due date of advances, if not recovered, filing of claim within 6 months
of the Report of Default. Recovery action taken after payment of claim followed
by sharing of recovery.
9. HIGHLIGHTS: Bank can take the cover selectively. Banks having ECIB-
WTPC are eligible for concessionary premium rate and higher percentage of
cover as applicable.
? EXPORT CREDIT INSURANCE-INDIVIDUAL POST -SHIPMENT
(ECIB -INPS)
1. ELIGIBILITY: Any bank or financial institution who is an authorized dealer in
foreign exchange can obtain the Individual Post-shipment Export Credit Cover in respect
of each of its exporter-clients who is holding the Standard Policy of ECGC WITHOUT
any exclusion.
2. PERIOD OF COVER: 12 months
3. ELIGIBLE ADVANCES: All post-shipment advances given through purchase,
negotiation or discount of export bills or advances against bills sent on collection.
4. PROTECTION OFFERED: Against losses that may be incurred in extending
post-shipment advances due to protracted default or insolvency of the exporter-client.
5. PERCENTAGE OF COVER: 75% for advances against bills drawn on buyers
other than associates and 60% for advances against bills drawn on associates.
6. PREMIUM: 6 paise per Rs. 100 p.m. payable on the highest amount outstanding on
any day during the month.
7. MAXIMUM LIABILITY: 75% of the Post-shipment Limits of the account.
8. IMPORTANT OBLIGATIONS OF THE BANK: Monthly declaration of
advances granted and payment of premium before 10th of succeeding month. Approval
of the Corporation for extension of due date beyond 180 days from due date to be
obtained. Default to be reported within 4 months from due date or extended due date of
advances, if not recovered, filing of claim within 6 months of the Report of Default.
Recovery action after payment of claim and sharing of recovery.
9. HIGHLIGHTS: Bank can take the cover selectively.
? EXPORT CREDIT INSURANCE-EXPORT FINANCE (ECIB-EF)
1. ELIGIBILITY: Any bank authorized to deal in foreign exchange can obtain the
Export Finance Cover in respect of its exporter-client who has been classified as a
standard asset and whose CR is acceptable to ECGC.
2. PERIOD OF COVER: 12 months.
3. ELIGIBLE ADVANCES: Advances against incentives such as cash assistance,
duty drawback, etc., receivable at post-shipment stage.
4. PROTECTION OFFERED: Against losses that may be incurred in extending
post-shipment advances against incentives due to protracted default or insolvency of the
exporter-client.
5. PERCENTAGE OF COVER: 75%.
6. PREMIUM: 6 paise per Rs.100 p.m. on the highest amount outstanding on any day
during the month.
7. MAXIMUM LIABILITY: 75% of the post-shipment limit sanctioned to the
account.
8. IMPORTANT OBLIGATIONS OF THE BANK: Monthly declaration of
advances granted and payment of premium before 10th of succeeding month. Approval
of the Corporation for extension of due date beyond 360 days from due date to be
obtained. Default to be reported within 4 months from due date or extended due date of
advances, if not recovered, filing of claim within 6 months of the Report of Default.
Recovery action after payment of claim and the subsequent sharing of recovery.
9. HIGHLIGHTS: Banks can take the cover selectively. Banks having ECIB-WTPS are
eligible for concessionary premium rate and higher percentage of cover as applicable.
? EXPORT CREDIT INSURANCE-EXPORT PERFORMANCE (ECIB-EP)
1. ELIGIBILITY: For banks holding ECGC Whole-turnover Packing Credit Cover
(ECIB-WTPC), cover under EP shall be considered for all their standard accounts
irrespective of credit ratings. In respect of other banks, it shall be only for standard
accounts with acceptable credit ratings.
2. PERIOD OF COVER: As per the period of the bank guarantee.
3. ELIGIBLE COVER: Bank guarantee issued in support of export obligations to
EPCs, CBs, STC, MMTC or recognized Export Houses, Bid Bond, Performance Bond,
Customs, Central Excise and Sales Tax Authorities, L/Cs opened for purchase/import of
raw materials in respect of export transactions.
4. PROTECTION OFFERED: Against losses that the bank may suffer on account of
bank guarantees given by it on behalf of exporters and due to protracted default or
insolvency of the exporter-client.
5. PERCENTAGE OF COVER: 75%
6. PREMIUM: 6.5 paise per Rs.100 p.m. on the Bank guarantee value and period.
7. MAXIMUM LIABILITY: 75% of the Cover value.
8. IMPORTANT OBLIGATIONS OF THE BANK: Premium is payable in
advance. Approval of the Corporation for any extension in the period of the bank
guarantee to be obtained. If the exporter fails to meet the payment as and when the
guarantee is invoked or when it falls due under L/C, necessary steps to be taken for
recoveries, including recall of advances and institution of legal proceedings. Default to
be reported within 4 months from due date or extended due date of advances, if not
recovered, filing of claim within 6 months of the Report of Default. Recovery action after
payment of claim and the subsequent sharing of recovery.
9. HIGHLIGHTS: Bank can take the cover selectively.
The Ministry in its reply stated (J une 2012) that:
• The Company’s intention was not to have any pinching effect on the Banks so that flow of
credit to export was not affected. It was for RBI to have a system of recognition of penalty to
reflect good and bad performance of Banks. • a spread of five years to arrive at the CPR was
considered logical and appropriate as steep increase in claims in any particular year would have a
milder impact. • WTPC covers carried a higher risk as compared to WTPS. The claim settlement
under WTPC had been invariably higher than WTPS for the last several years except for 2009-10
and 2010-11. • BOD did not suggest that the premium rates of the two covers be aligned but the
number of slabs under WTPS be aligned. • The percentage cover under WTPS was low as
compared to WTPC.
The replies are to be seen in the light of the fact that:
• The flow of credit was to be ensured by RBI and the Company’s role was limited only to
provide credit insurance to the Banks. It was not prudent on the part of the Company to bear the
burden of the bad performance of Banks in terms of credit management. • the adoption of five
year average was not in line with the practice followed by other General Insurers14, who were
normally adopting three year CPR. • The performance of the two products during the last nine
year period (2002-03 to 2010-11) showed that WTPC resulted in surplus of ` 1369 crore whereas
WTPS resulted in net loss of ` 192 crore during this period. Further, WTPC was profitable in
each of the nine year whereas WTPS sustained losses during five out of nine years. The recovery
performance under WTPC was also very high (46 per cent as against 18 for WTPS). Thus, the
Company was exposed to more risk under WTPS. Therefore, WTPS needed to be priced
appropriately.
Thus, there was a need for putting in place an effective system of incentives and disincentives
under WTPS for containing the adverse claim ratio.
It was observed that in some of the cases involving consortium arrangements, the Company
came to know of the same only at the time of filing of the Report of Default by the exporters.
Thus, in effect the Company, while underwriting the WTPS cover, did not assess the
concentration of risk to the extent that Company was not even aware of the existence of these
arrangements amongst Banks.
The Company in reply (March 2012) stated that the matter of co-ordination among various
consortium members, was to be dealt with by RBI16 and not by them.
The Ministry while endorsing (June 2012) the reply of the Company further stated that various
initiative have been taken by the Company to curb losses in the gem, jewellery and diamond
sector which had resulted in lower claim of ` 530 crore in 2011-12 as against ` 606 crore in 2010-
11. Moreover, it was stated that the Company had since introduced prudential norms for
exposures, linked to the net worth of ECGC.
The reply of the Company demonstrates that this serious threat to its financial condition due to
default by any one individual was not adequately evaluated and steps were not taken to mitigate
the probability of loss.
It was the responsibility of the Company to map all the risk exposures and provide for adequate
risk mitigation measures. Moreover, the risk exposure arising out of concentration of risk at
commodity, region or individual level cannot be mitigated unless the Company is aware of the
arrangements among the various Banks at the time of underwriting itself. Apart from the fact
that the claims of ` 530 crore were still very high, the reply of the Ministry was silent about the
high exposure level during the period.
2.2.3 Inadequacies in buyer verification
The WTPS covered all the account holders availing the credit facility from the Banks. Some of
the accounts holders could be policy holders (having short term policy with the Company). The
risk of default in respect of account holders, who were also policy holders, had already been
assessed and credit limit fixed by the Company. However, in respect of non-policyholders, the
Banks were required to take suitable safeguards like obtaining credit reports and satisfy that the
payments from the buyers were being received in the normal course.
In the earlier Performance Audit, the issue of inadequate verification of creditworthiness of
buyers was raised. The Ministry in Action Taken Note (ATN) of January 2011 stated that the
recommendation of audit to make verification of buyer credit worthiness mandatory for Banks
was implemented.
During the present audit, this issue was reviewed in detail and it was observed that 111 out of
135 WTPS claims paid by the Company during 2008-09 to 2010-11 pertained to non-
policyholders. In these cases, the Banks were responsible for verification. Audit scrutiny of 29
selected WTPS claims (all non-policy holders) amounting to ` 371 crore (69 per cent of ` 534
crore paid towards 135 claims.) indicated that out of 668 advances, the Bank branches had
disbursed 57417 advances to the exporters, without ensuring satisfactory buyer reports
Yet, advances were disbursed by the branches of Banks on the basis of outdated, post- dated,
unsatisfactory or nil buyer verification reports. Thus, there was lack of due diligence and non-
compliance with the stipulations made by the Company in the covering letter to the ECIB Bond
on the part of the Bank branches. No certificate regarding exercising of due diligence by the
Banks was ever insisted by the Company before payment of claims. Despite the laxity on the
part of the Bank branches, the Company paid claims of ` 316.13 crore23.
The Company in reply stated (March 2012) that:
• It was not practical to stipulate such conditions mandatory for all sectors as Banks followed
their own credit appraisal norms/standards;
• It had no intention of imposing the condition of obtaining overseas buyer reports in its cover
since the risk covered was default of the exporter and not the buyer;
• Based on adverse claim experience with regard to gems, jewellery and diamond sector,
obtaining satisfactory buyer reports was made mandatory for limit approvals from December
2009 onwards;
• There were umpteen instances where the Company disallowed many post shipment advances
on the ground of out-dated / post-dated / unsatisfactory reports.
During the Exit meeting in March 2012, the Management further elaborated that both the GOI
and RBI were taking a liberal view for extending credit to exporters, Banks were allowed to
advance even without firm order and Banks had to necessarily discount the bills presented by the
exporters even if the buyer verification showed inadequacies after the grant of packing credit
advances.
The Ministry in its reply further added (June 2012) that: • even if the buyer failed to repay, the
Banks had recourse on the exporter and it could not be concluded that the reason for non-
payment was on account of the buyer report being out-dated or un-satisfactory or post-dated.
Moreover, the entire account of the exporter-borrower was covered under ECIB and the claim
would be lodged only if the entire account became NPA.
• Subsequent to the audit recommendation for ensuring buyer verification, the Banks had
informed that they were governed by RBI norms and their internal sanction terms normally
stipulated conditions to the effect that they should obtain satisfactory credit reports on overseas
buyers who were not associates. Making ostentation of satisfactory report on the overseas buyer
mandatory for discounting the bills for all sectors might not be practical and the banks might opt
out of extending export finances, in the absence of covers from the Company.
• The Banks had to necessarily purchase the bills presented by the exporters, even if the buyer
verification showed inadequacies.
• The Company erred in accepting audit recommendation made in the Performance Audit Report
of 2008 regarding obtaining of satisfactory report on overseas buyer mandatory by banks for
extending ECIB Covers to banks.
However, it also stated that the Company would consider stipulating the condition relating to
buyer verification for specific sectors in future, if warranted by circumstances.
The replies have to be viewed in the light of the following:
• As per the Company’s manual, WTPS covered non-realization of export proceeds and resultant
insolvency/protracted default of the exporter. Thus the performance of the foreign buyer was not
delinked from the exporter and the risk basically rested on the financial position of the buyer.
• Though Banks were governed by the RBI norms, it is in the interest of the Company to have
enabling provisions in their cover to guard against unmitigated risk falling to their account.
Ensuring proper buyer verification by Banks would minimize the chances of default as well as
loss to the Company.
• The Ministry in its ATN (January 2011) had stated that the earlier audit recommendation on the
issue was implemented by the Company. However, the present endorsement of the Company’s
reply that they erred in accepting the recommendation showed weakness in governance. Further,
the Banks’ internal sanction terms did not distinguish an associate from non-associate in the
matter of buyer verifications.
• The Banks were under no obligation to discount the bills after knowing that the buyer report
was unsatisfactory.
• The action taken by the Company in December 2009 referred to issue of an internal circular to
its branch offices stipulating buyer verification for gem and jewellery advances, which was not
legally binding on the Banks. Further, the audit recommendation was for all the commodities.
• Out of 574 advances for ` 572.16 crore in the last three years, where audit observed default by
the exporters, the Company had disallowed only seven cases for ` 10.41 crore (1.82 per cent) on
grounds of buyer reports.
• IRDA had vide its onsite inspection report (October 2011) on ECGC inter-alia commented on
the unsatisfactory buyer reports.
Thus, the Company accepted the liability despite defective buyer reports rendering the system
susceptible to be used as a conduit for transferring the NPAs of Banks. This ultimately resulted
in the negative performance of the WTPS cover with a deficit of ` 187 crore during the three
years ending 31 March 2011.
Injudicious underwriting
In some export transactions, the foreign buyers make advance payment to the Indian exporters
for executing the contract and the same gets liquidated on satisfactory performance of the
contract. However, the buyers in these cases generally require that the advance payment be
guaranteed by Banks.
The Company through its Export Performance Advance Payment (EPAP) cover provided
counter guarantee to the Banks against the guarantees so issued
The Company was issuing these counter guarantees to the Banks relying on the assessment of
creditworthiness of exporter by Banks and there was no system of independent evaluation of the
exporter or their capacity to execute the contract.
The case relating to issuance of counter guarantees to the Banks in respect of M/s Zoom
Developers Limited is discussed below:
M/s Zoom Developers Limited a medium sized project development and IT Company was
involved in multi sector projects like process plants, chemical and petro chemical plants, steel
plants, auto components, rehabilitation of water supply pipelines etc. The Company issued 193
counter guarantees for a value of ` 2114 crore during 2003 to 2009 to a consortium of 24 Banks
led by Punjab National Bank in respect of the above exporter. These counter guarantees covered
the advance payments received by the exporter from its foreign buyers for executing projects in
different countries. However, 190 covers for ` 2066 crore were invoked (since March 2009
onwards) by the foreign buyers for non-completion of projects. Accordingly, the consortium of
Banks made (February 2010 to April 2011) claims and the net claim liability likely to devolve on
the Company worked out to ` 1047 crore. The Company after receipt of the claim, conducted
(September 2011) inspection of records at the Banks and found that the part money received as
advances initially, was sent back to the same entity who had given the advance. The inspection
also revealed that ` 15 crore was transferred (September 2006) to entities not connected with the
project. The Company rejected the claims of the Banks on the above ground. The matter was
also being investigated (2011) by CBI25 and a case was registered against the Director of M/s
Zoom Developers Limited and others.
Though the Company had rejected the claims during March 2011 to October 2011, yet, the
following omissions on the part of the Company in undertaking this risk required mention:
• The guarantee and counter guarantee was meant for a period of six months. However, in the
instant case, the Company extended the counter guarantees for more than five years and
simultaneously increased its exposure.
The Company in reply (March 2012) stated it had issued the covers in good faith based on
information provided by Banks in their proposal form. Further, it was stated that the claims had
been rejected on account of serious fraud committed by the exporter and non- monitoring the end
use of funds by the Banks in violation of RBI norms. The Company also stated that it had since
initiated stricter risk mitigation measures/prudential norms such as fixation of limits for each
exporter exposure, augmenting reinsurance covers, revisiting and strengthening ECIB/EP cover
documents etc. During the Exit meeting, the Company assured to review and take corrective
action to improve the form design of ECGC cover and also carry out verification of Bank’s
appraisal at the underwriting stage in respect of large EPAP covers.
The Ministry endorsed (June 2012) the reply of the Company regarding issuance of the cover
under good faith and rejection of claim on account of fraud committed by the exporter.
The fact remains that the Company did not have an appropriate system of making an independent
assessment of the risk while underwriting mega risks.
Non-issue of commodity specific covers for diamond exports
We observed that though the claim pay out in respect of gems and jewellery advances during
2008-09 to 2010-11 was maximum (` 432 crore out of total ` 534 crore), the decision of the BOD
to issue commodity specific cover with proper premium rate was pending since 2002. The CMD
had also observed (March 2011) the need for increase in premium rate for gems and jewellery
and Company’s corporate plan also provided for issue of such covers.
The Company in its reply (March 2012) stated that it was in discussion with Gem and Jewellery
Export Promotion Council for introduction of suitable commodity cover.
Fixing of Maximum Liability
The Company at the time of underwriting the covers for WTPC and WTPS was also fixing the
Maximum Liability (ML) separately for each of them. The ML signified the cap on the liability
on the part of the Company towards the Bank. As per the ECIB manual of the Company, the ML
was to be fixed for each Bank on the basis of aggregate advances (WTPC or WTPS advances)
outstanding as on 31 March before commencement of the cover (July to June). We observed, in
selected 33 covers of WTPC, where CPR was more than 70 per cent, the ML ranged from 9.55
per cent to 71.56 per cent of the aggregate outstanding advances. Similarly, in 33 covers of
WTPS, where CPR was more than 70 per cent, the ML ranged from 5.46 per cent to 169.49 per
cent. Thus, there was no uniformity in fixing the ML.
Further, the fixation of ML with reference to the aggregate of advances outstanding at the year-
end only without appropriate formulae was flawed. The Company needed to cap its liability by
assessing the risk for each Bank considering the factors like CPR, number of account holders,
number of policy holders, number of Non-Performing Account holders with amount of
outstanding from them etc.
The Company replied (March 2012) that it was in the process of formulating suitable
methodology for fixing maximum liability under WT covers.
The Ministry replied(June 2012) that for the year 2012-13, ML was being fixed by the Company
after taking into account three parameters viz. one third of total outstanding, 20-30 times of
premium anticipated or received in previous year, ML approved for Banks with comparable
business for the year 2012-13.
Advances for buyers in the defaulters list
In the event of default in payment by a buyer, the Company besides canceling the Overall Limit
(OL) sanctioned on that buyer puts the buyer's name in the defaulters list also. The defaulters list
was intended to caution other exporters on the financial condition of the buyer for appropriate
action.
It was seen in audit that during April 2008 to July 2009, 18 Bank branches gave 40 PS advances
amounting to ` 38.75 crore to ten exporters against four defaulted buyers, who had already been
placed in defaulters list during November 2006 to September 2007. Though this was in violation
of the due diligence clause of the ECIB cover granted to the Banks, yet the Company paid claims
of ` 23.40 crore in respect of these four buyers.
LIST OF COMPANIES WITH NEAGTIVE PREMIUM A/C
S.
NO.
COMPANY POLICY NO. PREMIUM
DUE
PERSON
CONTACTED
REMARKS
1 DELTA CLOTHING 0020008274 29,371.00 ---- REFERED TO
SEEMA
MADAM
2 UNITED EXPO 0020011634 3,316.00 Mr. KANTI
SHAH
WILL SEND
CHEQUE
SOON
3 RAN IMPLEX 0560000508 6,965.00 Mr. SAMIR
GHANDHI
NO
SHIPMENTS
4* G. JEWELCRAFT 0560000788 12,861.00 Mr. VINOD
GODHA
WILL SEND
CHEQUE
SOON
5 SUNDARAM
JEWELERRY
0560000391 8,390.00 Mr. PUSHPAK
DESAI
ASKED FOR
SENDING MAIL
REAGRDING
CALCULATION
OF PREMIUM
6* NAVSHILA
JEWELLERY PVT.
LTD.
0560000254 29,561.00 Mrs. LOPA WILL SEND
CHEQUE
SOON
7 NEOGEM (I) LTD. 0560000771 9,03,476.00 Mr. GOPAL
DHRUV
PROBLEM
WITH
CALCULATION
OF PREMIUM
8* EURO CREAMICS 0020011946 12,009.00 Mr. ANIL
PILLAI
WILL SEND
CHEQUE
SOON
9 MIDAS CARE
PHARMACUTICALS
0560000548 1,53,238.00 ---- ----
10 HEMLINES TEXTILE
EXPORT PVT. LTD.
0560000575 78,029.00 Mr. SAGAR WILL COME
AND MEET
PERSONALLY
11 FORMOKEM INDIA
CORPORATION
0560000686 7,699.00 Mr. DESAI ASKED TO
SEND AN E-
12* PREMCO GLOBAL
LTD.
0560000209 27,697.00 Mr. KISHORE WILL SEND
CHEQUE
SOON
13 DIMPLEX JEWELS
PVT. LTD.
0560000364 2,805.00 Mr. VIRAL
MEHTA
ALREADY
DISPATCHED
THE CHEQUE
14 AZURE JOUEL
PVT.LTD.
0560000645 1,85,841.00 Mr. NIPUN
KOTHARI/ Mr.
PRASANNA
REFERED TO
SEEMA
MADAM
Staff accountability issues
Any loss to the Bank due to an act of omission and/or commission on the part of the Bank
officials was excluded from the cover given by the Company. Accordingly, at the time of claim
submission to the Company, Banks were required to give an explicit undertaking that either there
was no omission or commission on the part of their officials or an investigation was under
progress. The Banks undertook to refund the entire claim amount in the event of any official
found guilty of mollified, negligence or irregularity.
The above issue was raised in the earlier Performance Audit Report, wherein it was
recommended that the Company needed to institute a system for regular in-house consolidated
reporting and follow-up of claims involving accountability issues besides ascertaining its dues, if
any, arising out of such cases. The Ministry also accepted (January 2009) the above
recommendation and stated in ATN (January 2011) that the Company had implemented the
same.
The implementation of the above recommendation was reviewed during the present audit and it
was observed that the computerized system implemented for capturing the data regarding staff
accountability issues did not have any provision to capture the data regarding internal enquiry, if
any, in progress. Further, there was no provision in the system to consolidate the data at Head
Office level. As a result, the Company manually compiled the data with only number of cases
on the basis of information sent by its branch offices. Data regarding money value and age-
wise/investigating agency-wise analysis of the cases where enquiry was going on was also not
available with the Company.
It may be seen from the above table that 60 pending cases for ` 66.08 crore were between 5 to 10
years of age. The branch did not reply to an audit query regarding periodic follow-up of these
cases with the Banks.
Taking into account the above, the Company needed to address the deficiency in capturing the
data in the system for effective monitoring. The pending staff accountability cases also needed to
be closely monitored.
The Company stated (March 2012), that the format of undertaking was designed in consultation
with Indian Banks Association and the same would be reviewed and suitably modified, if
required.
The Ministry while endorsing (June 2012) the reply of Company regarding revision of format of
undertaking, further stated that the Company had advised its branches to vigorously follow up
the cases, obtain necessary information and to report the same to Head Office. It was further
informed that the Company was setting up a separate recovery cell at HO and follow up of staff
accountability would be a part of the work entrusted to the cell.
Recoveries of claims settled
After settlement of claims, branches of the Company were required to pursue the recoveries with
the Banks and branch-wise targets were also set in this regard. We observed that pending
recoveries had gone up from ` 2170 crore in 2008-09 to ` 2333 crore in 2009-10 and further to `
2628 crore in 2010-11. The actual recoveries made during these years also declined from `
151.29 crore in 2008-09 to ` 110.65 in 2010-11 which was indicative of inadequate recovery
efforts. The age-wise detail of the pending recoveries was not on record.
In reply, the Company stated (March 2012) that the recoveries being effected in ECIB were
considered reasonable in the light of the fact that the Banks were not insisting upon material
collaterals where ECIB covers were available. It also stated that the collateral securities obtained
by the Banks were meant for all facilities sanctioned to an exporter by the Bank and not
exclusively for the facilities under ECIB.
The Ministry stated (June 2012), that the Company was setting up a separate recovery cell to
consolidate recovery efforts of branches. It was further stated that the reduction in ratio of
recovery to outstanding amount was also due to not writing off very old cases and efforts would
be taken to improve the ratio.
Export Credit Insurance For Exporters in Short Term(ECIE-ST)
TURNOVER BASED
Shipments Comprehensive Risks Policy - (SCR)
Shipments (Comprehensive Risks) Policy, commonly known as the Standard Policy, is the one
ideally suited to cover risks in respect of goods exported on short-term credit, i.e. credit not
exceeding 180 days. This policy covers both commercial and political risks from the date of
shipment. It is issued to exporters whose anticipated export turnover for the next 12 months is
more than Rs.50 lacs. (The appropriate policy for exporters with an anticipated turnover of Rs.50
lacs or less is the Small Exporter's Policy, described separately).
The Risks cover under the policy:
Under the Standard Policy, ECGC covers, from the date of shipment, the following risks:
a.) Commercial Risks:
I. Risks covered under the overseas buyers:
? Insolvency of the buyer.
? Failure of the buyer to make the payment due within a specified period, normally four months
from the due date.
? Buyer's failure to accept the goods, subject to certain conditions.
II. Risks covered on the L/c opening bank:
? Insolvency of the L/c Opening bank.
? Failure of the L/C opening bank to make the payment due within a specified period normally
four months from the due date.
? Insolvency of the L/c Opening bank.
b.) Political Risks:
? Imposition of restriction by the Government of the buyer's country or any Government action,
which may block or delay the transfer of payment made by the buyer.
? War, civil war, revolution or civil disturbances in the buyer's country. New import restrictions
or cancellation of a valid import license in the buyer's country.
? Interruption or diversion of voyage outside India resulting in payment of additional freight or
insurance charges which cannot be recovered from the buyer.
? Any other cause of loss occurring outside India not normally insured by general insurers, and
beyond the control of both the exporter and the buyer.
Small Exporters Policy - (SEC)
The Small Exporter's Policy is basically the Standard Policy, incorporating certain improvements
in terms of cover, in order to encourage small exporters to obtain and operate the policy. It is
issued to exporters whose anticipated export turnover for the period of one year does not exceed
Rs.50 lacs. The nature of commercial risks and political risks cover is similar to that of the
Shipment Comprehensive Risk (SCR) or Standard policy.
The salient features of Small Exporters Policy:
Period of Policy:
Small Exporter's Policy is issued for a period of 12 months, as against 24 months in the case of
Standard Policy.
Minimum Premium:
Premium payable will be determined on the basis of projected exports on an annual basis subject
to a minimum premium of Rs. 2000/- for the policy period. No claim bonus in the premium rate
is granted every year at the rate of 5% (as against once in two years for Standard Policy at the
rate of 10%).
Declaration of Shipments:
Shipments need to be declared quarterly (instead of monthly as in the case of Standard Policy).
Declaration of overdue Payments:
Small exporters are required to submit monthly declarations of all payments remaining overdue
by more than 60 days from the due date, as against 30 days in the case of exporters holding the
Standard Policy.
Waiting Period for Claims:
The normal waiting period of 4 months under the Standard Policy has been halved in the case of
claims arising under the Small Exporter's Policy.
Change in terms of payment of extension in credit period:
In order to enable small exporters to deal with their buyers in a flexible manner, the following
facilities are allowed:
? A small exporter may, without prior approval of ECGC convert a D/P bill into DA bill,
provided that he has already obtained suitable credit limit on the buyer on D/A terms.
? Where the value of this bill is not more than Rs.3 lacs, conversion of D/P bill into D/A bill is
permitted even if credit limit on the buyer has been obtained on D/P terms only, but only one
claim can be considered during the policy period on account of losses arising from such
conversions.
A small exporter may, without the prior approval of ECGC extend the due date of payment of a
D/A bill provided that a credit limit on the buyer on D/A terms is in force at the time of such
extension.
Resale of unaccepted goods:
If, upon non-acceptance of goods by a buyer, the exporter sells the goods to an alternate buyer
without obtaining prior approval of ECGC even when the loss exceeds 25% of the gross invoice
value, ECGC may consider payment of claims up to an amount considered reasonable, provided
that ECGC is satisfied that the exporter did his best under the circumstances to minimize the
loss. In all other respects, the Small Exporter's Policy has the same features as the Standard
Policy.
Specific Shipment Policy - Short Term (SSP-ST)
Specific Shipment Policies - Short Term (SSP-ST) provide cover to Indian exporters against
commercial and political risks involved in export of goods on short-term credit not exceeding
180 days. Exporters can take cover under these policies for either a shipment or a few shipments
to a buyer under a contract. These policies can be availed of by
? exporters who do not hold SCR Policy and
? By exporters having SCR Policy, in respect of shipments permitted to be excluded from
the preview of the SCR Policy.
Different types of SSP (ST) :
? Specific Shipments (commercial and political risks) Policy - short-term.
? Specific Shipments (political risks) Policy - short-term.
? Specific Shipments (insolvency & default of L/C opening bank and political risks) Policy -
short-term.
The risks covered under the SSP Policy:
Under the Specific shipment Policies, ECGC covers from the date of shipment, the following
risks:
a.) Commercial Risks:
I. Risks covered on the overseas buyers:
? Insolvency of the buyer.
? Failure of the buyer to make the payment due within a specified period, normally four months
from the due date.
? Buyer's failure to accept the goods, subject to certain conditions.
II. Risks covered on the L/c opening Bank:
? Insolvency of the L/c Opening bank.
? Failure of the L/C opening bank to make the payment due within a specified period normally
four months from the due date.
a.) Political Risks:
? Imposition of restriction by the Government of the buyer's country or any Government action,
which may block or delay the transfer of payment made by the buyer.
? War, civil war, revolution or civil disturbances in the buyer's country. New import restrictions
or cancellation of a valid import license in the buyer's country.
? Interruption or diversion of voyage outside India resulting in payment of additional freight or
insurance charges which cannot be recovered from the buyer.
? Any other cause of loss occurring outside India not normally insured by general insurers, and
beyond the control of both the exporter and the buyer.
Services Policy - (SRC)
Where Indian companies conclude contracts with foreign principals for providing them with
technical or professional services, payments due under the contracts are open to risks similar to
those under supply contracts. In order to give a measure of protection to such exporters of
services, ECGC has introduced the Services Policy.
What are the different types of Services Policy and what protection do they offer?
? Specific Services Contract (Comprehensive Risks) Policy;
? Specific Services Contract (Political Risks) Policy;
? Whole-turnover Services (Comprehensive Risks) Policy; and
? Whole-turnover Services (Political Risks) Policy.
Specific Services Policy, as its name indicates, is issued to cover a single specified contract. It is
issued to provide cover for contracts, which are large in value and extend over a relatively long
period. Whole-turnover services policies are appropriate for exporters who provide services to a
set of principles on a repetitive basis and where the period of each contract is relatively short.
Such policies are issued to cover all services contracts that may be concluded by the exporter
over a period of 24 months ahead.
The Corporation would expect that the terms of payment for the services are in line with
customary practices in international trade in these lines. Contracts should normally provide for an
adequate advance payment and the balance should be payable periodically based on the progress
of work. The payments should be backed by satisfactory security in the form of Letters of Credit
or bank guarantees.
Services policies are designed to cover contracts under which only services are to be rendered.
Contracts under which the value of services to be rendered forms only a small part of a contract
involving supply of machinery or equipment will be covered under an appropriate specific policy
for supply contracts.
Export Turnover Policy - (ETP)
Turnover policy is a variation of the standard policy for the benefit of large exporters who
contribute not less than Rs. 10 lacs per annum towards premium. Therefore all the
exporters who will pay a premium of Rs. 10 lacs in a year are entitled to avail of it.
Distinct features of Turn Over Policy:
The turnover policy envisages projection of the export turnover of the exporter for a year and the
initial determination of the premium payable on that basis, subject to adjustment at the end of the
year based on actual. The policy offers simplified procedure for premium remittance and filing of
shipment information and a substantial turnover based discount on premium rate applicable for
standard policy i.e. Shipment Comprehensive Risk (SCR) policy. It also provides for higher
discretionary credit limits on overseas buyers, based on the total premium paid by the exporter
under the policy. The turnover policy is issued with a validity period of one year. In most of the
other respects including commercial and political risks covers, the provisions relating to standard
policy will apply to turnover policy.
Export Specific Buyer Policy-(BWP)
Buyer wise Policies - Short Term (BP-ST) provide cover to Indian exporters against commercial
and political risks involved in export of goods on short-term credit to a particular buyer. All
shipments to the buyer in respect of whom the policy is issued will have to be covered (with a
provision to permit exclusion of shipments under LC). These policies can be availed of by
(i) Exporters who do not hold SCR Policy and
(ii) By exporters having SCR Policy.
In case all the shipments to the buyer in question have been permitted to be excluded from the
purview of the SCR Policy.
The different types of BP (ST):
? Buyer wise (commercial and political risks) Policy - short-term
? Buyer wise (political risks) Policy - short-term
? Buyer wise (insolvency & default of L/C opening bank and political risks) Policy - short-term.
The risks covered under the Buyer Wise Policy:
Under the policy covers commences from the date of shipment, the following risks:
a.) Commercial Risks:
I. Risks covered on the overseas buyers:
? Insolvency of the buyer.
? Failure of the buyer to make the payment due within a specified period, normally four months
from the due date.
? Buyer's failure to accept the goods, subject to certain conditions.
II. Risks covered on the L/c opening Bank:
? Insolvency of the L/c Opening bank.
? Failure of the L/C opening bank to make the payment due within a specified period normally
four months from the due date.
b. Political Risks:
? Imposition of restriction by the Government of the buyer's country or any Government action,
which may block or delay the transfer of payment made by the buyer.
? War, civil war, revolution or civil disturbances in the buyer's country. New import restrictions
or cancellation of a valid import license in the buyer's country.
? Interruption or diversion of voyage outside India resulting in payment of additional freight or
insurance charges which cannot be recovered from the buyer.
? Any other cause of loss occurring outside India not normally insured by general insurers, and
beyond the control of both the exporter and the buyer.
Consignment Exports Policy - (CEP)
Consignment Exports Policy (Stockholding Agent and Global Entity)
Economic liberalization and gradual removal of international barriers for trade and commerce are
opening up various new avenues of export opportunities to Indian exporters of quality goods.
One of the methods being increasingly adopted by Indian exporters is consignment exports
where the goods are shipped and held in stock overseas ready for sale to overseas ready for sale
to overseas buyers, as and when orders are received. The Consignment Policy cover protects the
Indian Exporters from possible losses when selling goods to ultimate buyers.
There are two policies available for covering consignment export viz;
? Consignment Exports (Stock-holding Agent)
? Consignment Exports (Global Entity Policy)
Under what circumstances, Consignment Exports (Stock Holding Agent) Policy
cover can be availed of?
A consignment Exports (Stock-holding Agent) Policy will be appropriate for each exporter –
stock holding agent combination provided the following criteria are satisfied.
? Merchandise are shipped to an overseas entity in pursuance of an agency agreement;
? The overseas agent would be an independent and separate legal entity with no associate/sister
concern relationship with the exporter;
? The agent’s responsibilities could be any or all of the following, viz., receiving the shipment,
holding the goods in stock, identifying ultimate buyers and selling the goods to them in
accordance with the directions, receiving payments , if any, of his principal (exporter); and
? The sales being made by the agent would be at the risk and on behalf of the exporter (whether
or not such sales are in the agent’s own name or otherwise) in consideration of a commission
or some similar reward or compensation on sales completed.
Under what circumstances Consignment Exports ( Global Entity ) Policy can be
availed of ?
The policy can be availed of in respect of consignment exports made by the Indian exporter
through its overseas associate viz. branch office, sister concern/subsidiary Company etc., who is
called as the global entity, in the following manner.
? Merchandise are shipped to overseas associates;
? Overseas associates receives and holds the goods whether or not under written agreement;
? The overseas party’s responsibilities could ,depending upon its legal status , be any or all of
the following , viz. receiving the shipment , holding the goods in stock , identifying ultimate
buyers and selling the goods to them in accordance with the directions , if any , of the
principal (exporter in India);
? The sales made by the overseas party need not necessarily be at the risk or on behalf of the
exporter.
Exposure Based
Buyer Exposure Policy - (BEP)
Presently, in the policies offered to exporters premium is charged on the export turnover, though
the Corporation’s exposure on each buyer is controlled through a system of approval of credit
limits on the buyer for covering commercial risks. While this suits the small and medium
exporters, many large exporters having large number of shipments have been complaining about
the volume of returns to be filed under the policy necessitating the deployment of their resources
for this purpose and also resulting in possible unintentional omissions or commissions in such
reporting, which have an impact on the settlement of claims. There has been a demand for
simplification of the procedures as well as for rationalization of the premium structure.
Considering the requirements of such exporters, the Corporation has decided to introduce
policies on which premium would be charged on the basis of the expected level of exposure.
Two types of exposure policies – one for covering the risks on a specified buyer and another for
covering the risks on all buyers- are offered.
Two types of Exposure policies are offered, viz;
? Exposure (Single Buyer) Policy – for covering the risks on a specified buyer and
? Exposure (Multi Buyer) Policy – for covering the risks on all buyers.
What does an Exposure (Single Buyer) Policy cover?:
An exporter can choose to obtain exposure based cover on a selected buyer. The cover would be
against commercial and political risks attached to the buyer for both non-LC and LC transactions.
A separate Buyer Exposure Policy will be issued for each buyer covering all the exports to be
made to the buyer during a period of twelve months. If the exporter has opted for commercial and
political risks cover, failure of the LC opening bank in respect of exports against LC will also be
covered, for the banks with World Rank (WR) up to 25,000 as per latest Banker’s almanac. For
covering the political risks only, in respect of LC transactions or shipments to associates, Buyer
Exposure policy with endorsement restricting the cover to political risks only. This policy can be
availed by exporters holding Standard Policy in respect of any of their buyers. Shipments to the
buyers covered under Buyer Exposure Policies would be excluded from the purview of the
Standard Policy.
What is a Multi Buyer exposure based policy ( MBEP) ?
In case of an exporter making exports to a large number of overseas buyer, finds it inconvenient
either to apply for buyer (single buyer) exposure policy for all buyers or declare their exports
shipment wise , it can avail cover through a MBE policy. Under the policy the exporter can take
cover for all its credit term exports made to all buyers for aggregate loss limit (ALL), in respect
of commercial risks and political risks. Normally ALL sought under the policy should not be less
than 10% of the total export turns over for applicable categories/ countries. The policy does not
cover the exports to buyers in the countries which are in the restricted cover country (RCC) list
maintained by the Corporation and buyers under the buyers specific approval list (BSAL) of the
Corporation. The cover for L/c opening banks are also available for banks with World rank up to
25000 as per latest banker’s almanac. Loss limit in respect of individual buyer/bank will be
restricted up to 10% of ALL.
IT-Enabled Services Policy - (ITES)
IT-enabled Services Policy is issued to cover the following commercial and political risks
involved in rendering IT-enabled services to a particular customer.
a.) Commercial Risks:
? Insolvency of the customer.
? Failure of the customer to make the payment due within a specified period, normally four
months from the due date.
? Buyer's failure to accept the services rendered (subject to certain conditions).
b.) Bank Risks :
? Bankruptcy of L/c opening bank.
? Failure of L/c opening bank to make the payment due within a specified period, normally
within four months from the due date (Non-payment due to discrepancies in the document
will not be covered).
c.) Political Risks :
? Imposition of restrictions by the Government of the customer’s country or any Government
action which may block or delay the transfer of payment made by the customer;
? War, civil war, revolution or civil disturbances in the customer’s country.
? New import restrictions or cancellation of a valid import license by authorities in the
customer’s country;
? Cancellation by the Govt. of India a legally valid and binding contract between the exporter
and the customer.
What types of ITES contracts that will be eligible for cover?
ITES policy will provide cover in respect of contracts for rendering service during a defined
period with billing on the basis of service rendered during a period say, a week, a month or a
quarter, where the payments due for the services rendered will be received in foreign currency.
How many types of ITES policies are there?
There are two types of ITES policies;
1. Single Buyer IT – Enabled services Policy (SITES);
2. Multi Customer IT- Enabled services Policy ( MITES).
Small And Medium Enterprise - (SME)
Policy for SME Sector
ECGC introduced a Policy exclusively for the SME sector units in 4th July, 2008. The Policy
particularly provides the SME Sector easy administrative and operational convenience.
The risks covered under the policy:
a.) Commercial Risks
I. Risks covered on the overseas buyers:
? Insolvency of the buyer.
? Failure of the buyer to make the payment due within a specified period, normally 2 months
from the due date.
? Buyer's failure to accept the goods, subject to certain conditions.
II .Risks covered on the L/c opening Bank:
? Insolvency of the L/c Opening bank
? Failure of the L/C opening bank to make the payment due within a specified period normally
2 months from the due date.
b. Political Risks:
? Imposition of restriction by the Government of the buyer's country or any Government action,
which may block or delay the transfer of payment made by the buyer.
? War, civil war, revolution or civil disturbances in the buyer's country. New import restrictions
or cancellation of a valid import license in buyer's country.
? Interruption or diversion of voyage outside India resulting in payment of additional freight or
insurance charges which cannot be recovered from the buyer.
? Any other cause of loss occurring outside India not normally insured by general insurers, and
beyond the control of both the exporter and the buyer.
The features of the SME Policy are as under;
Glance no. Particulars Details
1 Policy Period 12 months
2 Processing Fees Rs.1000
3 Credit Limit Fees No
4 Declarations No
5 Premium Rs 5000
6 Maximum Loss Limit Rs. 10 Lacs
7 Single Loss Limit Rs. 3 Lacs
8 Report of overdue more than 60 days
9 Waiting Period 2 months from due date
10 Percentage of Cover 90%
This Policy is meant for exporters engaged in manufacturing activities having invested in plant
and machinery or engaged in export of services having invested in equipment as per MSMED
Act, 2006. This Policy can be issued to an exporter qualifying as per the MSMED Act, 2006.
This Policy can be issued to an exporter qualifying as per the MSMED Act, 2006. The exporter
desirous of obtaining the Policy should furnish the certificate issued by the designated authority.
(District Industries Centers).
This Policy is not meant for the exporters carrying out trade activities only.
Software Project Policy - (SPP)
The Services Policies of the Corporation which have been in existence for some time were
offered to provide protection of exporters of services including software and related services.
However it was found that the general services policy does not meet with the exact requirements
of software exporters. It was therefore decided to introduce a new credit insurance cover to meet
the needs of the software exporters, namely, software projects policy, where the payments will
be received in foreign exchange. The general services policies will continue to be offered for the
export of services other than software and related services.
What are the software services exports that will be eligible for cover under the Software Project
Policy?
The following software services will be eligible for cover under the Software Projects Policy:
Software project services, either on one time/turnkey basis or progressive/milestone basis,
involving:
? Development of software off-shore (i.e. at the exporters location in India) to be delivered and
implemented in the buyer’s (client) location; or
? Development of software on-site of the client and supply and implementation; or both off-
shore and on-site development.
The risks covered under the policy:
a.) Commercial Risks:
I. Risks covered on the overseas buyers:
? Insolvency of the buyer.
? Failure of the buyer to make the payment due within a specified period, normally four months
from the due date.
? Wrongful repudiation of the contract by the customer after the exporter has incurred expenses
for commencement of services.
b.) Political Risks:
? Imposition of restriction by the Government of the customer’s country or any Government
action, which may block or delay the transfer of payment made by the customers.
? War, civil war, revolution or civil disturbances in the customer's country.
? The imposition in India or in the customer’s country after the date of contract ,of any law or
of an order , decree or regulation having the force of law , which in circumstances outside the
control of the exporter and /or the customer , prevents performance of the contract;
? Or any of the following causes of loss beyond control of the exporters or the customers.
(a). Refusal of visa for the employees of exporter for reasons not attributable to exporter or
buyer;
(b). Increase of in any tax /new levies payable by exporter in customer’s country which is not
recoverable from customer;
(c). Imposition by a competent court of law or the government , a rule or law or an order which
results in losses / additional costs due to infringement of intellectual property rights(IPR) of a
process or software which was either in the domain of free software or the IPR was not
established on the date of contract; etc.
For a, b, c above the cover under the policy would be available to the maximum extent 25% of
the value of export.
Export Credit Insurance for Exporters in Medium and Long Term
(ECIE-MLT):
Construction Works Policy-(CWP)
Construction Works Policy is designed to provide cover to an Indian contractor who executes a
civil construction job abroad. The distinguishing features of a construction contract are that
(a) the contractor keeps raising bills periodically throughout the contract period for the value of
work done between one billing period and another.
b) to be eligible for payment, the bills have to be certified by a consultant or supervisor engaged
by the employer for the purpose and (c) that, unlike bills of exchange raised by suppliers of
goods, The bills raised by the contractor do not represent conclusive evidence of debt but are
subject to payment in terms of the contract which may provide, among other things, for penalties
or adjustments on various counts. The scope for disputes is very large. Besides, the contract value
itself may only be an estimate of the work to be done, since the contract may provide for cost
escalation, variation contracts, additional contracts, etc. It is, therefore, important that the
contractor ensures that the contract is well drafted to provide clarity of the obligations of the two
parties and for resolution of disputes that may arise in the course of execution of the contract.
Contractors are well advised to use the Standard Conditions of Contract (International) prepared
by the Federation International Des Ingenieurs Conseils (FIDIC) jointly with the Federation
International du Batiment et des Travaux Publics (FIBTP).
What are the risks covered by Construction Works Policy?
The Construction Works Policy of ECGC is designed to protect the Contractor from that may be
sustained by him due to the following risks:
? Insolvency of the employer (when he is a non-Government entity);
? Failure of the employer to pay the amounts that become payable to the contractor in terms of
the contract, including any amount payable under an arbitration award;
? Restrictions on transfer of payments from the employer's country to India after the employer
has made the payments in local currency;
? Failure of the contractor to receive any sum due and payable under the contract by reason of
war, civil war, rebellion, etc;
? The failure of the contractor to receive any sum that is payable to him on termination or
frustration of the contract if such failure is due to its having become impossible to ascertain
the amount or its due date because of war, civil war, rebellion etc;
? Imposition of restrictions on import of goods or materials (not being the contractor's plant or
equipment) or cancellation of authority to import such goods or cancellation of export license
in India, for reasons beyond his control; and
Interruption or diversion of voyage outside India, resulting in his incurring in respect of goods or
materials exported from India, of additional handling, transport or insurance charges, which
cannot be recovered from the employer.
Loss coverage:
85%
Important Obligations:
? Obtain indicative premium rate at bid stage
? Seek post awarded approval from AD/WG on award of contract
? Obtain in-principle approval
? Seek cover after payment of premium
? Advise progress of project in accordance with PEM guidelines
? Declaration of overdue payments
? Filing of claim within 12 months from due date
? Sharing of recovery
Highlights:
? Cover can be either for political or comprehensive risks
? Cover for full insurable value including retention portion
? Cover for third country exports as well
? Premium can be paid in installments
? Reduced loss coverage with proportionate reduction in premium.
? Reduced premium for projects funded by Multi-lateral agencies.
Specific Policy for Supply Contract
The Standard Policy is a whole turnover policy designed to provide a continuing insurance for
the regular flow of an exporter's shipments for which credit period does not exceed 180 days.
Contracts for export of capital goods or turnkey projects or construction works or rendering
services abroad are not of a repetitive nature and they involve medium/long-term credits. Such
transactions are, therefore, insured by ECGC on a case-to-case basis under Specific Contract
Policies.
The formalities to be completed before applying for specific policies for contracts.
All contracts for export on deferred payment terms and contracts for turnkey projects and
construction works abroad require prior clearance of Authorized Dealers, EXIM Bank or the
Working Group in terms of powers delegated to them as per exchange control regulations
(Kindly refer to 'Projects Exports Manual' of Reserve Bank of India. For further details go
to www.rbi.org.in. Applications for the purpose are to be submitted to the Authorized Dealer (the
financing bank), which will forward applications beyond its delegated powers to the EXIM Bank.
Proposals for Specific Policy are to be made to ECGC after the contract has been cleared by the
Authorized Dealer, EXIM Bank or the Working Group, as the case may be.
Risk Covered:
Commercial:
? Insolvency of buyer.
? Protracted default of buyer.
? Buyer’s failure to accept goods.
Political:
? War, Civil War, Revolutions in buyer’s country.
? New Import restrictions.
? Transfer delays.
L/C Opening Bank Risks:
? Insolvency
? Default
Loss Coverage:
90%
Important Obligations:
? Obtain indicative premium rate at bid stage
? Seek post awarded approval from AD/WG on award of contract
? Obtain in-principle approval
? Seek cover after payment of premium
? Advise progress of project in accordance with PEM guidelines
? Declaration of overdue payments
? Filing of claim within 12 months from due date
? Sharing of recovery
Highlights:
? Cover can be either for political or comprehensive risks
? Add on pre-shipment risk cover can also be obtained
? Cover for full insurable value including retention portion
? Cover for third country exports as well
? Premium can be paid in installments
? Reduced premium for projects funded by Multi-lateral agencies.
Specific Shipment Policy-(SSP)
Specific Shipments Policy can be obtained by exporters that have secured contract for supply of
capital goods such as machinery or equipments on deferred terms of payment. The cover
provides protection against non-receipt of payments due to commercial and /or political risks.
Risk Covered:
Commercial:
? Insolvency of buyer
? Protracted default of buyer
? Buyer’s failure to accept goods
Political:
? War, Civil War, Revolutions in buyer’s country
? New Import restrictions
? Transfer delays
L/C Opening Bank Risks:
? Insolvency
? Default
Loss Coverage:
90%
Highlights:
? Obtain indicative premium rate at bid stage
? Seek post awarded approval from AD/WG on award of contract
? Obtain in-principle approval
? Seek cover after payment of premium
? Advise progress of project in accordance with PEM guidelines
? Declaration of overdue payments
? Filing of claim within 12 months from due date
? Sharing of recovery
Important Obligations:
? Cover can be either for political or comprehensive risks
? Add on pre-shipment risk cover can also be obtained
? Cover for full insurable value including retention portion
? Cover for third country exports as well
? Premium can be paid in installments
? Reduced premium for projects funded by Multi-lateral agencies
Specific Services Policy-(SRC)
Where Indian companies conclude contracts with foreign principals for providing them with
technical or professional services, payments due under the contracts are open to risks similar to
those under supply contracts. In order to give a measure of protection to such exporters of
services, ECGC has introduced the Services Policy. A wide range of services like technical or
professional, hiring or leasing can be covered under these Policies.
Risk Covered:
Commercial:
? Insolvency of buyer
? Protracted default of buyer
Political:
? War, Civil War, Revolutions in buyer’s country
? Transfer delays
LC Opening Bank Risks:
? Insolvency
? Default
Loss Coverage:
90%
Important Obligations:
? Obtain indicative premium rate at bid stage
? Seek post awarded approval from AD/WG on award of contract
? Obtain in-principle approval
? Seek cover after payment of premium
? Advise progress of project in accordance with PEM guidelines
? Declaration of overdue payments
? Filing of claim within 12 months from due date
? Sharing of recovery
Highlights:
? Cover can be either for political or comprehensive risks
? Cover for full insurable value including retention portion
? Premium can be paid in installments
? Reduced premium for projects funded by Multi-lateral agencies.
? Reduced loss coverage with proportionate reduction in premium
Letter of Credit confirmation Cover
Transfer Cover
When a bank in India adds its confirmation to a foreign Letter of Credit, it binds itself to honor
the drafts drawn by the beneficiary of the Letter of Credit without any recourse to him provided
such drafts are drawn strictly in accordance with the terms of the Letter of Credit. The
confirming bank will suffer a loss if the foreign bank fails to reimburse it with the amount paid to
the exporter. This may happen due to the insolvency or default of the opening bank or due to
certain political risks such as war, transfer delays or moratorium, which may delay or prevent the
transfer of funds to the bank in India. The Transfer Cover seeks to safeguard banks in India
against losses arising out of such risks.
Transfer Cover is issued, at the option of the bank to cover either political risks alone, or both
political and commercial risks. Loss due to political risks is covered up to 90% and loss due to
commercial risks up to 75%.
What are the applicable premium rates?
The premium rates depend on the country of export and the tenor of L/C.
CHAPTER – 3
Performance Analysis & Corporate Social Responsibility
EXPORT PERFORMANCE GUARANTEE
What are the different types of bank guarantees which exporters are required
to furnish?
Exporters are sometimes called upon to execute bonds duly guaranteed by an Indian bank at
various stages of export business. An exporter who desires to quote for a foreign tender may
have to furnish a bank guarantee in the form of a bid bond. If he wins the contract, he may have
to furnish bank guarantees to foreign buyers to ensure due performance or against advance
payment or in lieu of retention money or to a foreign bank in case he has to raise overseas
finance for his contract. Further, for obtaining import licenses for raw materials or capital goods,
exporters may have to execute an undertaking to export goods of a specified value within a
stipulated time, duly supported by bank guarantees. Bank guarantees are also furnished by
exporters to the Customs, Central Excise, or Sales Tax authorities for the purpose of clearing
goods without payment of duty or for exemption from tax for goods procured for export.
Exporters may also be required to furnish guarantees in support of export obligations to Export
Promotion Councils, Commodity Boards, The State Trading Corporation of India, the Minerals
and Metals and Metals Trading Corporation of India etc.
What is the objective of Export Performance Guarantee?
An export proposal may be frustrated if the exporter's bank is unwilling to issue a guarantee,
which the exporter may be required to furnish. The Export Performance Guarantee provided by
ECGC is aimed at helping the exporter in such cases. The Guarantee, which is in the nature of a
counter guarantee to the bank, is issued to protect the bank against losses that it may suffer on
account of guarantees given by it on behalf of exporters. This protection is intended to encourage
banks to give guarantees on a liberal basis for export purposes.
What are the main features of Export Performance Guarantee?
Normally, cover is extended up to 75 percent of loss in the case of guarantees in connection with
bid bonds, performance bonds, advance payment and local finance guarantees and guarantees in
lieu of retention money. In the case of bid bonds relating to exports on medium/long term credit,
overseas projects, and projects in India financed by international financial institutions as well as
supplies to such projects, ECGC is agreeable to issue Export Performance Guarantee on payment
of 25% of the prescribed premium. The balance of 75% becomes payable by the bankers if the
exporter succeeds in the bid and gets the contract.
What are the applicable premium rates?
While the premium rate for guarantee issued to cover bond relating to exports on short-term
credit is 0.90% p.a. for 75% cover, it is lower for bonds relating to exports on deferred credit and
projects, namely 0.80% p.a. for 75% cover and 0.95% p.a. for 90% cover.
Export Performance Guarantee
Exporters are often called upon to execute bonds duly guaranteed by an Indian bank at various
stages of export business. An exporter who desires to quote for a foreign tender may have to
furnish a bank guarantee for the bid bond. If he wins the contract, he may have to furnish the
bank guarantees to the foreign buyers to ensure due performance or against advance payment or
in lieu of retention money or to a foreign bank in case he has to raise overseas finance for his
contract. Further, for obtaining import licenses for raw materials of capital goods, exporters
may have to execute an undertaking to export goods of specified value within a stipulated
time, duly supported by bank guarantees. Bank guarantees are also furnished by exporters to the
Customs, Central excise or Sales tax authorities for the purpose of clearing goods without
payment of duty or for exemption from tax for goods procured for export. Exporters also furnish
Guarantees in support of the export obligations to Export Promotion Councils, Commodity
Boards, The State Trading Corporation of India, the Minerals and Metals Trading Corporation
of India or recognized Export Houses.
An export proposition may be frustrated if the exporter’s bank is unwilling to issue the
guarantee. The Export Performance Guarantee is aimed at meeting such situations.
Export Performance Guarantee is an insurance cover for banks, which issues various kinds of
guarantees on behalf of exporters in order to facilitate export transactions. The insurance is
provided by ECGC with the objective of enabling exporters to obtain the required guarantee
facility from banks on easy terms. The Guarantee, which is in nature of a counter guarantee to
the bank, is issued to protect the bank against losses that it may suffer on account of guarantees
given by it on behalf of export purposes.
Export Performance Guarantee (EPG) may be issued to a bank to cover any guarantee that it may
issue in connection with an export transaction. A list of such guarantees is listed below.
• Bid Bond or Bid Guarantee, which is required to be submitted along with bids for export
contracts.
• Performance Bond or Performance Guarantee which is issued to the foreign buyer for due
performance of the contract.
• Advance Payment Guarantee, which is issued to the foreign buyer against advance
payment, received from the buyer.
• Retention Money Guarantee issued to the foreign buyer in lieu of his retaining a portion of each
payment as Retention Money.
• Guarantee issued to an overseas bank for the purpose of enabling the foreign bank to extend
foreign currency loan/ advance to the Indian exporter for the purpose of executing an export
contract.
• Guarantee issued to the Customs Authorities in India in lieu of Customs duty payable on
imported raw material or components meant for manufacturing goods for export.
• Guarantee issued to Import Control Authorities in India in support of export undertakings given
by the exporter who gets advance import license.
• Guarantee issued to Sales Tax Authorities in lieu of payment of sales tax on goods meant for
export.
• Guarantee issued to Export Promotion Council against allotment of export quota.
EPG provides cover to the bank against the risk of loss involved in issuing the above types of
guarantees. For the purposes of EPG, a loss will be deemed to have arisen when the bank is
unable to recover from the exporter the money that it has had to pay to the beneficiary of the
guarantee on his invoking it. The bank will have to ensure that:
1. The guarantee was invoked by the beneficiary
2. The amount demanded by the beneficiary was paid by it strictly in accordance with the
guarantee
3. The exporter was called upon to reimburse the bank with the said amount and,
4. The exporter has failed to discharge the debt so created.
The risk insured under the EPG are the insolvency of the exporter and its protracted
default. Normally a cover is extended up to 75% of loss but in the case of guarantees in
connection with bid bonds, performance bonds advance payment and local finance guarantees
and guarantees in lieu of retention money, the cover may be increased up to 90% subject to
proportionate increase in premium.
While the premium rate for Guarantee issued to cover bond relating to exports on short-term
credit is 0.90% p.a. for 75% cover and 1.08% p.a. for 90 % cover, it is lower for bonds, relating
to exports on deferred credit and Projects. The rate of premium is 0.80% p.a. for 75% cover and
0.95% for 90% cover. In case of Bid Bonds relating to exports on medium/long term credit,
overseas Projects, and Projects in India financed by international financial institutions as well as
supplies to such Projects, ECGC is agreeable to issue Export Performance Guarantee on payment
of 25% of the prescribed premium. The balance of 75% becomes payable to the Corporation by
the bankers if the exporter succeeds in the bid and gets the contract.
In order to reduce the cost of participating in global tenders for export of capital goods or
Projects, EPG to cover the related Bid Bond Guarantees are issued on payment of 25% of the
premium due. No further premium is payable if the exporter is not declared successful in the
bid. The balance amount of the premium will have to be paid only if the exporter succeeds in the
bid.
EPG can be obtained either to cover a specified single guarantee or for all the guarantees that
may be issued during a period of 12 months on account of a specified exporter. Where EPC is
taken for a single guarantee, the bank is required to pay the full premium in advance. EPG for
covering all the guarantees that may be issued over a 12 month period on behalf of a single
exporter will be issued on payment of small Guarantee Fees. Thereafter, the bank will have to
pay premium on the value of each guarantee, as and when it is issued. Exporters and Bankers can
obtain proposal forms from the nearest branch of the Corporation.
PERFORMANCE ANALYSIS OF ECGC
FINANCIAL HIGHLIGHTS
The Company has registered a 15% growth in revenue during the year ended March 31, 2013
and the performance of the Company has also been reasonably sound during the period. The
gross premium earned by the Company during the FY 2012-13 was ` 1,157.25 crores, against `
1,004.83 crores during the previous year. Post adjustment of Reinsurance Cession and Reserve
for un-expired risks, the figure for premium earned (Net) for the FY 2012-13, increased
marginally to ` 796.04 crores as against ` 766.25 crores for the previous year.
During the FY 2012-13, the total claims paid by the Company amounted to ` 548.50 crores as
against the previous year's figure of ` 713.03 crores. After adjusting for reinsurers' share,
recoveries and provisions, the incurred claim for the FY 2012- 13 was ` 812.80 crores as against
` 679.61 crores during FY 2011-12.
The Investment and other income have increased to ` 410.56 crores in FY 2012-13 from ` 359.91
crores in the previous year. The Net Worth of the Company as on March 31, 2013 was ` 2,436.99
crores as against ` 2,167.75 crores as on March 31, 2012.
PROFITS AND APPROPRIATIONS
During the FY 2012-13, total income from Operations grew by 6.07% to ` 1,020.62 crores from `
962.19 crores in the previous year. During the year, the Company posted an Operating Profit of `
171.48 crores compared to an Operating Profit of ` 166.95 crores during the previous year.
During the FY 2012-13, Profit Before Tax (PBT) was ` 350.14 crores as against ` 327.73 crores
in the previous year. After providing for ` 107.35 crores towards tax and prior period
adjustments, Profit After Tax (PAT) available for appropriation in the current year was ` 242.79
crores as against ` 225.21 crores in the previous year.
PERFORMANCE HIGHLIGHTS OF 5 YEARS
(In Rs. Crores)
Years 2012-13 2011-12 2010-11 2009-10 2008-09
Value Of Business Covered
Short Term Policies
Short Term ECIB
Medium & Long Term Covers
126100.41
133250.78
10160.31
119,621.00
120,118.65
6,886.48
93,127.40
331,758.29
7,002.65
85,686.85
271,273.95
6,767.51
68,870.85
261,731.51
4,855.11
Total 269.511.50 246,626.13 431,888.34 363,728.31 335,457.47
Premium Income
Short Term Policies
Short Term ECIB
Medium & Long Term Covers
360.68
751.72
44.85
355.89
601.82
47.12
333.66
510.57
41.23
289.43
486.78
36.79
246.71
464.81
33.79
Total 1,157.25 1,004.83 885.46 813.00 744.68
Claims Paid
Short Term Policies
Short Term ECIB
Medium & Long Term Covers
113.69
396.61
38.2
87.03
626.00
0.00
160.90
459.63
0.00
270.02
371.70
0.00
217.23
234.19
0.00
Total 548.50 713.03 620.53 641.72 451.42
Recoveries Made
Short Term Policies
Short Term ECIB
Medium & Long Term Covers
7.4
104.71
8.42
6.31
152.59
9.74
9.27
110.65
16.14
16.33
110.87
6.40
56.97
151.29
0.32
Total 120.53 168.84 136.06 133.60 208.58
Source: - Compiled on the basis of Various Annual Reports of ECGC
When we discussed about the financial performance of ECGC, than we find that the value of
business covered in term of short term policy show a increasing trends i.e. 68870.85 in 2008-09
to 126100 in 2012-13. In term of short term ECIB show a volatile position i.e261731.51in 2008-
09, 331758.29 2010-11 and 133250.78 in 2012-13.
When we make an analysis of the financial performance of ECGC, than we find that the value of
business covered in term of short term policy show a increasing trends i.e. 68870.85 in 2008-09
to 126100 in 2012-13.
2008-09 2009-10 2010-11 2011-12 2012-13
Short term Policy 68870.85 85686.85 93127.4 119621 126100
0
20000
40000
60000
80000
100000
120000
140000
S
h
o
r
t
t
e
r
m
p
o
l
i
c
y
2012-13 2011-12 2010-11 2009-10 2008-09
Short Term ECIB 133250.78 120,118.65 331,758.29 271,273.95 261,731.51
0
50000
100000
150000
200000
250000
300000
350000
Short Term ECIB
When we make an analysis of the financial performance of ECGC, than we find that the value of
business covered in term of short term ECIB show a volatile position i.e261731.51in 2008-09,
331758.29 2010-11 and 133250.78 in 2012-13.
When we make an analysis about the financial performance of ECGC, than we find that the
value of business covered in term of medium and long term covers show an increasing trend i.e
4855.11 in 2008-09 to 10160.31 in 2012-13.
Corporate Social Responsibility
As per the MOU signed with Ministry of Commerce, Govt. of India for the year 2011-12,ECGC
has undertaken following three projects at M Ward, Mankhurd, Mumbai with the help of
National Corporate Social Responsibility Hub ( NCSRH) under administrative control of Tata
Institute of Social Science, ( TISS ) ,Chembur, Mumbai.
1. Empowerment of Women
2. Scholarship to Meritorious Students from underprivileged sections
3. Support to export oriented Skill Development Centre
The above projects will be completed by March’2013.
Under the Corporate Social Responsibility (CSR) initiatives, ECGC had released an amount of
Rs.6,50,500 on 21.4.2011 for construction of first floor to Nirdhar Pratisthan , Mumbai, a
2012-13 2011-12 2010-11 2009-10 2008-09
Medium & Long Term Covers 10160.31 6,886.48 7,002.65 6,767.51 4,855.11
0
2000
4000
6000
8000
10000
12000
Medium & Long Term Covers
registered Charitable Trust under Mumbai Public Trust Act 1950 which provides permanent
home care service for mentally challenged persons.
Under Corporate Social Responsibility (CSR) ECGC has donated school bus to Matru Seva
Sangh's, Nadanvan School, Nagpur (School for Mentally challenged children) on 01/04/2011.
Under the Corporate Social Responsibility (CSR) ECGC has donated an amount of Rs.28.45
lacs on 28.03.2011 to Priya Darshani Jan Kalyan Samiti , Gyanpur, Dist. Bhadohi. An NGO
providing education to the children of Carpet weavers
CORPORATE ALLIANCE
ECGC - D & B Alliance
ECGC and Dun & Bradstreet (D&B) had entered into an agreement whereby ECGC shall use its
best endeavors to promote marketing and distribution of Cross Border Information Services and
Domestic information. In terms of the agreement, the following services shall be available.
Business Information Report : (BIR)
D & B can provide credit information reports on buyers to exporters. To avail of this facility,
Exporter is required to submit his request together with necessary charges to the nearest office of
ECGC which will be forwarded to National Marketing Division, Mumbai for necessary action. The
report of the buyer will be sent by D&B directly to the exporter.
Business Marketing Services (BMS)
At the request of the customer , D & B can provide a list of 10 buyers for a specific commodity
and/or from a selected country from the vast database of buyers it has all over the Globe. Exporter
is required to submit his request together with necessary charges to the nearest office of ECGC
which will be forwarded to National Marketing Division, Mumbai for necessary action. The list of
buyers will be sent by D&B directly to the Exporter. The charges/fee for providing this service will
be based on Continent/Country and measured in units.
Duns Number :
Any exporter who wishes to get himself registered in the database of D & B can do so free of
cost if he is the Policyholder of ECGC and approaches D&B through ECGC. By registering himself
, the Indian exporter can get enquiries from all over the world for their products. Necessary
application form can be obtained from the nearest branch of ECGC.
What is NEIA?
The National Export Insurance Account has been set up by the Government of India (GOI) and
operated by ECGC to provide adequate credit insurance cover to protect long and medium term
exporters against both, political and commercial risks of the overseas country and the buyer/bank
concerned. The NEIA trust also provides covers to banks for Buyer’s Credit transactions which
facilitates foreign buyer to pay for project exports from India.
Indian companies secure overseas projects against stiff international competition and needs
adequate credit insurance to enhance their competitiveness. Projects are required to be
undertaken, specifically due to the long term economic interest and political relationship of India
with importing country. Given India’s long term economic and political interests with the
concerned country, it is crucial that ability of Indian exporters undertaking such contracts is not
hampered by the inability to obtain credit insurance cover. With this view GOI has set up the
NEIA.
ECGC, a Govt. of India enterprise under the aegis of the Ministry of Commerce, apart from
insuring credit risks under short term exports also provides credit insurance cover to Medium and
Long term exporters. However, at times, its own limitations make it difficult for ECGC to cover
such risks on purely commercial considerations, taking into account the long repayment period,
the large value of the contracts and the difficult economic and political conditions of the country,
coupled with the fact that reinsurance cover is generally not available in such cases.
The NEIA Trust, a public trust set up by the Government will manage the funds provided by the
Government. The trust has been assured a corpus of Rs.2,000 crores by the end of the 11th plan
period. At any point of time an exposure equal to ten times of the corpus will be underwritten by
NEIA subject other criteria.
To ensure proper & effective utilization of the NEIA scheme, to monitor its operations and to
provide guidance, the GOI has set up a High Powered Committee, the Committee of Directions
(COD) comprising : a) The Secretary-Ministry of Commerce- Chairman b) The Secretary-
Department of Economic Affairs c) The Secretary- Ministry of External Affairs, d) The
Additional Secretary and Financial Advisor-Dept. of Commerce, e) The CMD-ECGC, f) The
CMD- Exim Bank, g) Representatives of the Reserve Bank of India, h) Joint Secretary- Ministry
of Commerce & Industry, who is also a Member Secretary.
.
FINDINGS AND SUGGESTIONS
FINDINGS
The Company has registered a 15% growth in revenue during the year ended March 31, 2013
and the performance of the Company has also been reasonably sound during the period. The
gross premium earned by the Company during the FY 2012-13 was ` 1,157.25 crores, against `
1,004.83 crores during the previous year. Post adjustment of Reinsurance Cession and Reserve
for un-expired risks, the figure for premium earned (Net) for the FY 2012-13, increased
marginally to ` 796.04 crores as against ` 766.25 crores for the previous year.
During the FY 2012-13, the total claims paid by the Company amounted to ` 548.50 crores as
against the previous year's figure of ` 713.03 crores. After adjusting for reinsurers' share,
recoveries and provisions, the incurred claim for the FY 2012- 13 was ` 812.80 crores as against
` 679.61 crores during FY 2011-12.
During the FY 2012-13, total income from Operations grew by 6.07% to ` 1,020.62 crores from `
962.19 crores in the previous year. During the year, the Company posted an Operating Profit of `
171.48 crores compared to an Operating Profit of ` 166.95 crores during the previous year.
During the FY 2012-13, Profit Before Tax (PBT) was ` 350.14 crores as against ` 327.73 crores
in the previous year. After providing for ` 107.35 crores towards tax and prior period
adjustments, Profit After Tax (PAT) available for appropriation in the current year was ` 242.79
crores as against ` 225.21 crores in the previous year.
The Investment and other income have increased to ` 410.56 crores in FY 2012-13 from ` 359.91
crores in the previous year. The Net Worth of the Company as on March 31, 2013 was ` 2,436.99
crores as against ` 2,167.75 crores as on March 31, 2012.
Suggestions
After going through various aspects of the company the following measures can be suggested:-
? MARKETING:- It has been observed that company keeps a very low profile. This
can prove to be a threat, especially when private players are planning to enter the market.
The company should market itself through newspapers, exporter journals, export
seminars etc.
? DOCUMENTATION:- Steps should be taken to minimize the paperwork at the office. It
has been observed that most of the client had a problem in understanding the
documentation process.
? EXPANSION OF NETWORK:- Though ECGC has branches in every major
cities in the country, it must consider setting up branches in smaller towns such as Bhuj
(Gujarat) which is famous for its handicrafts, Dhanbad (Jharkhand) famous for coal
mining etc. This will create a new market for the company. Thus increasing the
profitability.
? EXPANSION OF BUSINESS:- Having such vast experience in export credit
insurance, the company must seek to expand in domestic credit insurance too. As the
economy marches ahead the domestic trade is bound to increase manifolds. This be the
correct time to enter the market as the economy is booming and trade is back on track.
? USE OF I.T:- Facilities such as e-filing of declaration of shipment, online payment of
premium etc. should be considered. This would make the documentation process quick
and at the same time it will simplify it.
Suggestions from the perspective of exporters:
1- In cases where the export credit limits are utilized fully, banks may adopt a flexible approach
in negotiating the bills drawn against LCs and consider in such cases delegating
discretionary/higher sanctioning powers to branch managers to meet the credit requirements of
the exporters. Similarly, branches may also be authorized to disburse a certain percentage of the
enhanced/adhoc limits, pending sanction by higher authorities/board/committee who had
originally accorded sanctions, to enable the exporters to execute urgent export orders in time.
2. It is reported that banks are hesitant to waive submission of order/LC even in respect of
exporters with good track record as settlement of claims, if any, by ECGC is adversely affected
by such waivers. ECGC has reported that any waiver of submission of order/LC should form part
of the terms of sanction of the export credit limits and should be communicated to ECGC. Where
such waivers are permitted ab-initio and the system of obtaining periodical statement of
outstanding orders/LCs on hand has been put in place, the same may be incorporated in the
sanction proposals as well as in the sanction letters issued to exporters and appropriately brought
to the notice of ECGC. Further, if such waivers are permitted at a time subsequent to sanction of
export credit limits with the approval of the appropriate authority, the same may be incorporated
in the terms of sanction by way of amendments and communicated to ECGC.
CONCLUSION
As we know the very objective of ECGC is to boost export and secure the Balance of Trade
favorable. ECGC since its inception till date have played a pivotal role in bringing a sense of
security and confidence among the exporting community by providing cost effective insurance
covers to both exporters and banks.
The majority of the non-policy holders are leaned towards retaining their risks, as they believe
that they are in a position to meet their financial risks out of their contingency funds and also
their buyers are the trusted ones and there are almost nill chances of default of payments on the
part of importers /buyers. I feel that despite ECGC has made highly incentivized schemes for
exporters as to be continued unclaimed export business, by providing NCB of 5% or 50% of
the total premium charged, based upon the concerned export business track records, the non-
policy holders are not interested in such policy. In this context a research needs to be done to
rationalize the overall products and services structure of the organization.
ECGC is currently enjoying the monopoly status in the credit insurance industry in India. The
company has wide network of branches catering to almost every type of exporters. Backed by the
Government of India the company has a great financial backup. But with new companies such as
Tata AIG, Bajaj Allianz, New India Assurance etc. planning to enter the market it’s going to be
tough.
The export credit business in India is still in its nascent stage because ECGC cover is barely 10%
of the total export business which is quite low and hence a lot of things need to be done.
BIBLIOGRAPHY
Books:
KOTHARI. Export Promotion Measures of India
GURUSAMY. Financial Services
SHARMA. Export Marketing
GIANTURCO. Export Credit Agencies
KUMAR. Export Financing In India
CHRISTOPHER, MICHAEL. Officially Supported Export Credit Developments
and Prospects.
BATTY. Industrial Administration and Management.
HARRIS. Economic Planning
TAUSSIG. Principles of Economics
Periodicals and Reports:
Yojana - Publisher : Ministry of Information and Broadcaster.
The Economist
The Indian Economy
India Today
Reader’s Digest
Business Weekly
Economic Weekly
Annual Report of ECGC: 2008-09
Annual Report of ECGC: 2009-10
Annual Report of ECGC: 2010-11
Annual Report of ECGC: 2011-12
Annual Report of ECGC: 2012-13
Websites:
? www.ecgcindia.in (official site of ECGC)
? www.ecgc.in/portal
? www.unionbankofindia.co.in
? www.rbi.org.in
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