The risk of non-payment may be due to political and economic changes all over the world. Political changes like an outbreak of war, civil war, a coup or an insurrection may block or delay payment for goods exported. Likewise economic difficulties or balance of payment problems which may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported. Commercial risks arise due to insolvency or prolonged 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.
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How will it help exporters? The details of the scheme were shared by Union Minister of Commerce and Industry and Railways, Piyush Goyal on September 16, during a press conference. The scheme was announced by the Finance Minister Nirmala Sitharaman on September 14 as a part of measures to boost exports. The insurance cover will include both pre and post-shipment credit. Enhanced Insurance Cover: Benefits The main aim behind introducing the scheme was to enhance accessibility and affordability of credit for exporters.
The decision will help make Indian exports competitive and make ECGC procedures exporter friendly, benefiting MSME exporters with a new scheme for reimbursing taxes, reduced insurance cost and ease of doing business. The insurance cover is expected to bring down the cost of credit due to capital relief, less provision requirement and liquidity due to quick settlement of claims and will ensure timely and adequate working capital to the export sector.
The ECGC insurance cover will provide additional comfort to banks as the credit rating of the borrower will be enhanced to AA rated account. The increased cover will ensure that foreign and rupee export credit interest rates are below 4 percent and 8 percent respectively for the exporters. The enhanced insurance cover will ensure that foreign and rupee export credit interest rates will be below 4 and 8 percent respectively for the exporters. It will catalyze the banks to enhance the volume of export credit lending, especially to the MSME Sector with optimal pricing due to capital and risk optimization.
The existing insurance covers issued by the ECGC will continue for the existing customer banks and similar covers will also be made available to all other banks.
The insurance cover will include not only the principal outstanding but also the unpaid interest for a maximum of two quarters or the NPA date, whichever is earlier. The coverage has been increased to 90 percent from the present average of 60 percent for both principal and interest.
It will also cover both pre-shipment and post-shipment advances unlike the present system, where two different documents are issued by the ECGC. The scheme also aims to simplify the procedure for settlement of claims and provisional payment of up to 50 percent within 30 days on production of proof of end-use of the advances in default by the Insured Bank. The scheme will be in force for a period of 5-years and on the conclusion, the standard ECGC covers will be made available to the Banks with its regular features.
For accounts with limits below Rs 80 crore, the premium rates will be moderated to 0. Further, the scheme will mandate inspection of bank documents and records by ECGC officials for losses exceeding Rs.
The banks shall pay a premium to ECGC monthly on the principal and interest as the cover is offered for both outstandings. The banks will also continue to follow the internal guidelines of the RBI relating to export finance backed by enhanced due diligence on the borrower.
Export Credit Guarantee Corporation of India
Foreign Exchange ECGC is designed to guard exporters from the consequences of the payment risks, both political and commercial, which enables the exporters to expand their overseas business without fear of loss. ECGC covers losses that may be incurred in extending loans by the banks and other financial intermediaries to exporters. Packing Credit Guarantee: The credit facilities extended to exporters at pre-shipment stage qualifies for Packing Credit Guarantee. This policy covers against losses that may be incurred in extending packing credit advances due to protracted default or insolvency of the exporter-client.
Export Credit Guarantee Corporation of India Limited
How will it help exporters? The details of the scheme were shared by Union Minister of Commerce and Industry and Railways, Piyush Goyal on September 16, during a press conference. The scheme was announced by the Finance Minister Nirmala Sitharaman on September 14 as a part of measures to boost exports. The insurance cover will include both pre and post-shipment credit.