ECGC and Whole Turnover Policy Cover

 

 

When an Indian exporter gets orders from abroad for export of goods he faces the risk of non payment from the buyer.  In order to protect its losses due to default in payment by buyer, he can avail insurance from Export Credit Guarantee Corporation of India Ltd. (ECGC) an agency promoted by Government of India. Under this mechanism, as soon as the exporter firms up the export order, he can submit the details of the order along with the details of bank account of the buyer/importer to ECGC for obtaining the insurance. Suppose that the order is of USD 10,000 which is to be shipped in ten months with USD 1000 worth goods to be shipped per month. Say the exporter allows 90 days credit to the importer for payment.  If the first shipment is sent on April 01, second on May 01, third on June 01, by the time of fourth shipment there will be accrued credit of USD 3000 for April, May and June shipments.  When exporter decides to take insurance from ECGC, he can avail either for a shipment specific or a comprehensive buyer specific insurance. Suppose he opts for a buyer specific insurance. Based on the information submitted, ECGC through its information sources and network carries out the due diligence of the buyer and if satisfied with the credentials of the buyer, it will approve a limit for the buyer. Say for example, limit approved in the present example is USD 3000 i.e at any point of time pending payment obligation of the buyer should not be more than USD 3000. Therefore, before shipping the fourth consignment, the exporter has to ensure that the buyer has made the payment of earlier consignments in order to keep the credit within the stipulated limit of USD 3000 by ECGC.

In a Standard Shipments (Comprehensive Risks) Policy ECGC 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. Under the Standard Policy, ECGC covers, from the date of shipment, the following risks: 

a. Commercial Risks viz.  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.

 b. Political Risks viz. 1.  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. 2.  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. 3.  Interruption or diversion of voyage outside India resulting in payment of additional freight or insurance charges which cannot be recovered from the buyer.  4.  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. 

There are various other insurance policies and Gurantee products by ECGC to meet the needs of the exporters and banks.

Banks in India provide pre-shipment (PC) and post-shipment (PSC) credit facilities to the exporter at the attractive terms. Banks also have the similar concerns as that of exporter regarding the non payment by the buyer. Non payment by the buyer would lead to default by the exporter in repayment of PC/PSC.  ECGC provides a comprehensive policy to the banks under which all the approved PC/PSC limits sanctioned by a bank to various clients are covered for insurance. This policy is called Whole-Turnover Policy. Under this policy all the PC/PSC limits sanctioned to the clients of the bank and status as ‘Standard’ under the RBI’s Prudential norms on Income Recognition, on a particular agreed cut-off date are covered under the policy.

Bank pays premium to ECGC on monthly basis in advance based on the average daily credit outstanding basis. Generally, the premium on PC limit is recovered from the exporter while the premium on PSC is absorbed by the bank. 

Under Whole Turnover PC policy, banks taking the cover for the first time, cover provided by ECGC is 75% up to certain Limit and 65% beyond the said Limit.  (For others it varies from 55% to 75% depending on claim premium ratio of the bank.). For Small Scale Exporters (SSE)/ Small Scale Industrial Units (SSI) with annual Export turnover not exceeding Rs. 50 Lakhs, 90% cover is provided.

Premium under Whole Turnover PC for a fresh cover is 8.5 paise (For others, varies from 6 to 9.5 paise per Rs. 100 p.m. depending on claim premium ratio) per Rs.100 per month on the average daily product basis.

Under Whole-Turnoover-PSC policy, cover provided by ECGC varies from 90% to 95% in respect of exporters who are Policyholders of ECGC and 50% to 75% for non-Policyholders, depending upon the claim premium ratio of the bank. For bills drawn on Associates of Policyholders coverage is 60% and of non-Policyholders it is 50%.

Premium charged by ECGC under Whole-Turnover – PSC Policy is 4.5 paise to 6.00 paise per Rs. 100 per month (p.m.) on the average daily product basis if advances against L/C bills are included for cover otherwise it is 5.5 paise to 7.00 paise depending upon the Claim Premium Ratio for the last 5 years.