The Export Credit Guarantee Corporation (ECGC) is working on a rating system for overseas buyers of Indian goods. This scorecard, based on quantitative and qualitative information, has become crucial for exporters and their insurers in view of the difficult financial situation in several countries. Based on this, ECGC will prescribe individual exposure limit for exporters. In an interview to Business Line , Mr N. Shankar, Chairman and Managing Director, talks about the performance of ECGC and explains the relevance of rating of overseas buyers. Excerpts:

How has been the performance of ECGC in the last fiscal?

Last year's performance has been reasonably good. Premium income actually crossed Rs 1,000 crore; rose to Rs 1,005 crore from Rs 885 crore. Correspondingly claims payment went up to Rs 713 crore from Rs 621 crore. Recovery has been higher at Rs 169 crore against Rs 137 crore. Because of the current global financial situation claims paid will be higher. You see, we are in the service of promoting exports. Our business has two components: one, direct insurance cover to exporters where we cover risk on the overseas buyers. The other is the cover to banks in India which provide credit to exporters. This business has been higher last year with the premium touching Rs 630 crore from Rs 533 crore.

Why are banks taking ECGC cover?

For banks, ECGC cover acts as a cushion. Normally, risk weight for export credit is 100 per cent, but if the loan is covered by ECGC, then the risk weight will be only 50 per cent.

Also, banks need not have to make provision for NPAs in export credit to the extent of ECGC cover.

In fact, State Bank of India, which discontinued its whole turnover policy with ECGC in 2003, has come back in November, 2011. Both pre- and post-shipment credit of all the associate banks will also follow. Now almost all public sector banks are taking whole- turnover ECGC cover. But aggregate export credit of scheduled commercial banks constitutes less than five per cent of the net bank credit. For banks net spread on export credit may be low. Also, foreign currency funds are not available in international markets at competitive rates.

In which sectors have you have seen maximum default or payment problem?

Majority of the claims have come from banks on their credit to exporters of commodities, diamond and gem and jewellery.

What is your focus currently?

My focus this year will be to strive for higher growth of direct cover to exporters. We target a growth of 10 per cent in this segment in the current year. Since we are taking the risk of buyers directly, we need to have a better rating system of overseas buyers. So we are introducing a scorecard system.

Many times, it is very difficult to get information about buyers. Sometime we have only their addresses. In counties like the UAE, we have to depend on outside agency for information. We also want to grade active buyers based on which we will prescribe individual exposure limit to them. The grading system is based on both qualitative and quantitative factors.

We will also enlarge the panel of agencies who give such rating/credit reports. We have information of about 94,000 overseas buyers.

What about country risk?

For country risk we are already having a model: Open cover and restricted cover lists. Open cover means our branches can decide on the exposure limit of buyers. In the restricted cover, the exposure limit is restricted. For example, Greece is currently in the restricted cover list. We have guidelines on this and the country grading is put on our Web site.

Are you giving cover against exports to Iran?

Iran is placed in Group B1 (3/7 - moderately low risk) and in Restricted cover Category II where specific approval is given, on case-to-case basis, for each contract of shipment. Cover for shipments to Iran is available for bills invoiced in currencies other than US dollar, euro and yen. Bills invoiced in rupees are also covered. Banks and entities on the UN and other sanctioned lists are not covered. Exporters are obliged to comply with FEMA guidelines as well as the foreign trade policy of the Government.

How do you manage recovery?

We want to strengthen our recovery system. Currently we do not have any overseas offices. Now, we are trying to explore the possibility of opening an overseas office. This will help us not only in recovery but also in fixing limits on buyers. Our own person can coordinate the activity better. I am sending a proposal to the government to set up some overseas offices where we have large exposures. We are doing a cost-benefit analysis for an overseas office. On default by overseas buyers, foreign insurers get the right of subrogation. In India, we are not getting this.

Any plan to increase your capital base?

Our business is growing. We need more capital. We would be approaching the government for increasing both paid-up and authorised capital of ECGC. Paid-up capital is expected to be increased by Rs 100 crore in the current fiscal.

As we are registered with IRDA, we have to follow all the prudential norms prescribed by IRDA.

Are you going overseas for re-insurance?

We have reinsurance facility from GIC. Of course, overseas reinsurance depends on the offers from overseas re-insurers and subject to IRDA guidelines. In reinsurance with overseas re-insurers, we are transferring the risk out of the country.

> kurup@thehindu.co.in

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