Circular No.ES/142/2019-20 September 17, 2019
To: Members of the Council
Sub: Ministry of Commerce through ECGC raises Insurance cover for Banks up to 90% for Working Capital Loans
As you may be aware, the Ministry of Finance has announced the Export Credit Insurance Scheme (ECIS), as part of measures to boost exports, on 14th September 2019 in New Delhi.
In this regard, Ministry of Commerce & Industry has informed regarding Export Credit Insurance Scheme vide Press Release dated 16th September, 2019.
Due to the global slowdown and rising Non-performing asset (NPAs), banks are in stress and therefore require additional support. In this regard, Ministry of Finance has taken steps towards merger of Banks and has infused additional capital to the banks. In order to facilitate banks, Ministry of Commerce & Industry has taken the following steps-
Enhanced Insurance cover for Banks up to 90% for the working capital loans and moderation in premium incidence for the MSME sector. This cover will ensure Foreign and Rupee export credit interest rates to be below 4% and 8% respectively for exporters.
The stimulus package will catalyze Banks to enhance volume of export credit lending particularly to the MSME Sector with optimal pricing due to capital and risk optimization.
The existing covers issued by Export Credit Guarantee Corporation of India (ECGC) will continue for the existing customer banks and similar covers will also be made available to all other banks. All standard accounts covered under ECGC as on the date of transition, shall be eligible for cover under the ECIS.
The scope of cover has been enlarged to cover the principal outstanding and the unpaid Interest (for a maximum of two quarters or the NPA date, whichever is earlier). The cover percentage has been enhanced to 90% from the present average of 60% for both Principal and Interest.
A single cover document for ECIS shall be issued covering both the Pre-shipment and Post-shipment advances.
The scheme envisages simplified procedure for settlement of claim and also for provisional payment up to 50% within 30 days on production of proof of end-use of the advances in default by the Insured Bank.
The ECIS support shall be for a period of 5 years and on conclusion, the standard ECGC covers will be available for Banks with its regular features.
For accounts with limits below Rs.80 crore – Premium rates will be moderated to 0.60 per annum.
For accounts with limits exceeding Rs.80 crore – Premium rate of 0.72 per annum for the same enhanced cover.
Banks shall pay premium to ECGC on monthly basis on the Principal and Interest as the cover is offered for both outstandings.
Inspection of bank documents and records by ECGC officials shall be mandatory for losses exceeding Rs.10 crore as against the present Rs.1crore.
Following procedural aspects shall continue as per the existing terms and conditions of cover of ECGC –
Reporting or seeking approval of limits,
Monthly declarations with premium,
Extension in due date under Pre-Shipment/Post-Shipment,
Report of Default,
Lodgment of Claim,
Placing of borrower in Specific Approval List (SAL),
Sharing of recovery,
Checking of Buyers Specific Approval List (BSAL)
Checking of Restricted Cover Category (RCC) Country.
This cover will 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.
Members may kindly make a note of the above details.