Cover for exporters to euro zone being monitored on regular basis

Written by Sitanshu Swain | Updated: Jan 18 2012, 07:22am hrs
The state-owned Export Credit Guarantee Corporation (ECGC), which provides cover to Indian exporters, is devising new policies for the export credit portfolios of banks, including the State Bank of India. N Shankar, CMD, ECGC, in an interview to FEs Sitanshu Swain, talks about how the corporation is helping banks and exporters manage their risks amid the euro-zone crisis.

SBI is conserving capital by taking cover for its export business from ECGC. Do you think after SBI, other banks would also be interested in such deals

SBI, the countrys largest bank, has obtained the Whole Turnover ECIB Cover from ECGC, effective November 1, 2011, under which the entire export credit portfolio of the bank ( approximately R30,000 crore) will be covered under a single umbrella insurance, for pre- and post-shipment export credit.

This is a win-win situation for both SBI and ECGC. While ECGC has managed to add substantial incremental business, SBI will be able to conserve considerable capital for, as per RBI norms on capital adequacy, banks need to consider only 20% risk-weightage on credit portfolio covered by ECGC.

Further, SBI will benefit from the lower provisioning requirement for advances covered by ECGC. After SBI, associate banks are following suit.

We have already agreed, in principle, to issue whole turnover ECIBs (covers to banks) to State Bank of Hyderabad. Other banks in the SBI group are also in touch with us.

While the value of risk in our books will rise by virtue of such covers, insurance works on the premises of probability, spread and quality of risks, and only a small portion of the total risk carried by the insurer is normally crystallised into loss. With ECGCs current net worth, solvency margin and the risk mitigation measures taken by it, the corporation can manage its enhanced business exposure well.

What kind of bank claims have you paid this year Which sectors account for the largest number of claims

During the past two financial years, the corporation has faced a large number of claims under the ECIB scheme due to the recession. Claims worth R371 crore and R459 crore were paid to banks during fy 2009-10 and 2010-11, respectively. Gems and jewellery accounted for a major share of the total claims paid. In the current financial year, ECGC has so far paid claims worth R349 crore to banks under the ECIB scheme. While claims from the gems and jewellery sector have tapered off, higher losses have been reported from agro, minerals/metals and RMG sectors.

In the backdrop of the euro-zone crisis, how do you see the risks for Indian exporters

The euro crisis has adversely affected Indian exporters as Europe happens to be their largest market. In the backdrop of the current economic crisis, exporters need to exercise caution and do business on safer payment terms. They also need to explore and shift their focus to alternate markets.

ECGC continues to provide credit cover on Euopean buyers. As of now, only one country Greece has been placed in our restricted cover category, wherein the cover is considered on a case-to-case or revolving basis. All other countries are currently under open cover and are continuously being monitored. In view of the precarious economic conditions, exporters need to exercise due care and prudence.

What is your agenda for ECGC in terms of risk management, capital, products and IT platform

ECGC has established a risk management division to monitor various types of risks financial, underwriting, operational and market. ECGC has put in place risk-management policies and fixed certain underwriting limits linked to the net worth of the corporation, under each line of business. For example, under policy business (covers to exporters), the overall underwriting limits are fixed on major buyers and risky/restricted cover countries.

Similarly, under ECIB business, prudential risk limits are fixed on exporter group and sectors (industry/commodity group).

ECGCs current paid-up capital is R900 crore. We are seeking substantial enhancement in the capital base during the next Five Year Plan, from the government. I feel that an insurance company like ECGC, which is basically an export promotion agency and covers huge credit risks of Indian exporters and banks, should be strongly capitalised. A strong capital base will enable the corporation provide adequate support to exports, particularly of large projects and to new, difficult or risky markets. Growth in exports can lead to a reduction in the trade gap.

ECGCs operations are computerised and all branches are linked to HO of the corporation on a central server. The corporation has embarked on an ambitious information technology upgradation project for providing online credit insurance services across India.

The new system, expected to go live in the next financial year, will enable the corporation to deliver more efficient web-based services to its customers and also help improve the internal management information and monitoring system.