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ECGC -IIFT session 11th April 2021.pptx

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ECGC -IIFT session 11th April 2021.pptx

  1. 1. Our Vision: To excel in providing export credit insurance and trade related services. Our Mission: To support the Indian Export Industry by providing cost effective insurance and trade related services to meet the growing needs of Indian export market by optimal utilization of available resources.
  2. 2. Background Export Credit Agency - ECGC, A systemically important institution Under Ministry of Commerce – supports around 30% of exports Composition Board of Directors ; Company’s Act Regulated by IRDAI; Oversight by DPE & CAG Network of offices – 5 Regional Offices and 60 Branches iAAA rating by ICRA, Jamnalal Bajaj Uchit Vyavahar Puraskar 2018
  3. 3. ROLE OF ECGC ECGC (Insurer) Short Term(ST) Medium and Long Term (M&LT) Short Term, Medium & Long Term Fund based Non fund Based Exporters Banks/FIs ECIB Cover
  4. 4. Types of Export Risks Credit Risk Legal Risk Political Risk Exchange Risk Transfer Risk Export Credit Risk
  5. 5. Political Risk • Some countries may experience major political instability leading to: –defaults on payments –exchange transfer blockages –nationalization –confiscation of property
  6. 6. Exchange Risk • The possibility of variability in the exchange rate on account of the time lag between the date of contract and actual payment is referred to as 'Exchange Risk'
  7. 7. Transfer Risk.. • Transfer risk arises from all/any of the above – Weakness in economy of Buyer's country, viz. low reserves, BOP problems – Failure of Buyer's Bank affecting payment of outstandings – Exchange or trade controls introduced in Buyer's country
  8. 8. Legal Risk • Differences in law can be expected in overseas countries • These may have an impact in such areas as: – import procedures – taxation – employment practices – currency dealings – property rights – the protection of intellectual property – agency/distributorship arrangements
  9. 9. Credit Risk • The risk of –Insolvency –Default –unwillingness to accept the goods on the part of the buyer Credit risk All resulting in…..
  10. 10. WHY ‘CREDIT’ • The exporter does not have ‘monopoly’ in the market. • To fight competition as it is ‘Buyers’ market generally. • To venture in new markets / new buyers. • To utilize the optimal use of resource of the exporters. • To promote the goods and increase the turnover. • To retain the existing customers. 11
  11. 11. LC TRANSACTION Risks Covered by ECGC POLITICAL RISK (Open Cover and Restricted cover ) COUNTRY BUYER BANK NON – LC COMMERCIAL RISK
  12. 12. Risks Not Covered ×Risks of loss due to commercial or quality disputes ×Causes inherent in the nature of goods ×Buyer’s failure to obtain necessary import or exchange authorisation from authorities in his country ×Insolvency or default of any agent of the exporter or of the collecting bank
  13. 13. Risks Not Covered ×Loss or damage to the goods which can be covered by general insurers ×Exchange Rate Fluctuation ×Failure of the exporter to fulfil the terms of the contract or negligence on his part
  14. 14. • Explore and expand business in new markets • Offer liberal credit to buyers on LC and Non-LC terms of payment • Get export loans from Banks • Working capital cycle is restored on settlement of claim • Supports Banks in the event of non-payment by the borrower • Increased liquidity for banks through ECGC claims • Lower provisioning to the extent of ECGC coverage • Adequate credit to exporters • Lower margins / collateral securities Benefits to Banks Benefits to Exporters
  15. 15. TERMS OF PAYMENT  Advance Payment  TT Against fax of B/L  LC Sight / Usance  DP Sight  Open Delivery  DA  LC-OD  Political Cover 16
  17. 17. Discounts / Malus Type of Policy cover – Declaration or Exposure Pricing under Policy Whole Turnover or Individual or Specific Cover Country of Buyer/Country of Destination. Terms of Payment viz DP/DA/LC
  18. 18. TYPES OF POLICY COVERS DECLARATION BASED (DB) WHOLETURNOVER, AND INDIVIDUAL WHOLETURNOVER, INDIVIDUAL AND SPECIFIC SPECIALIZED PRODUCT EXPOSURE BASED (EB) FOR EXPORTER (a) Software Exports (SPP) - EB (b) IT-enabled Services (SITES/MITES) - EB (c) Services other than (a) and (b)- (SRC) - DB (d) Consignment Exports (CSHA/CGE) – DB (e) For GJD Sector (MBEP) (e) Export Factoring Facility - DB (f) Customer Specific Covers (CSC) (SEP, SCR, ETP), (BWP), (SSP) (MBEP, MEP), (SBEP)
  20. 20. Basic Concepts Under Policy Basic Concepts Causes of Loss Commercial & Political risk Maximum Liability Limit up to which Liability will be accepted Credit Limit Limit up to which claim may be considered in case of each buyer in the event of loss Due date Demand bills: normal transit period Usance bill: normal transit + usance period
  21. 21. • Buyer’s Score Card Model Factors - Business ability, Financial strength, Transaction behaviour, Industry outlook • Over one lakh active Buyers on record on whom Overall limit is fixed • Buyer Specific Approval List • Country Risk Model Factors - Economic, Political, Experience of ECGC and others Berne Union members, Bilateral relations, Forecast • No. of Countries covered- 239 (A1, A2, B1, B2, C1, C2 & D) • Countries are classified in Open Cover and Restricted Cover Buyer Underwriting Country Underwriting
  22. 22. Credit Limit • The MAXIMUM amount up to which ECGC settles claim arising out of commercial risk on account of a particular buyer OR • The MAXIMUM limit up to which ECGC settles claim on account of commercial risk arising on account of failure or default of LC opening bank
  23. 23. Fixing of Limit • Based on agency report , PH’s experience with the buyer, PH’s track record with ECGC, decision is taken to approve limit on the buyer • Overall limit on the buyer is fixed based on an estimation of the likely outstanding at one point of time on the buyer taking into account the orders on hand, shipment schedule and orders anticipated
  24. 24. Seven Fold Country Classification Risk Category ECGC Classification Insignificant A1 (1/7) Low A2 (2/7) Moderately Low B1 (3/7) Moderate B2 (4/7) Moderately High C1 (5/7) High C2 (6/7) Very High D (7/7)
  25. 25. Types of Cover • While underwriting the country risk, ECGC places the country either in • The basis for deciding on the type of cover and terms of cover is a host of economic and political factors Open Cover Restricted Cover OR
  26. 26. Open Cover Countries • Cover with No Restrictions • Cover is offered usually on normal terms and conditions i.e. 90% cover, 4 months waiting period for ascertainment of loss and settlement of claims, etc.
  27. 27. Restricted Cover Countries • Usually those countries where the political and/or economic conditions are relatively deteriorating or have deteriorated and likelihood of payment delays or non- payment are imminent or have occurred • Permits selection of risks ECGC wishes to underwrite
  28. 28. • Divided into 2 Groups • Group 1: Countries for which revolving limits are approved normally valid for one year – Basis of cover: • ILCs opened or confirmed by banks listed in Banker’s almanac or by local banks whose reports are satisfactory. Cover will be 90% • Normal cover of 90% on DP/DA terms subject to satisfactory report on the buyer Restricted Cover Countries
  29. 29. • Group 2: Countries where Specific Approval will be given on case to case basis on merits – Valid for six months – Normal waiting Period of 4 months – Countries under this category: North Korea, Venezuela, Sudan, Syria and Palestine Restricted Cover Countries
  30. 30. How to keep the policy in order Ensure that the policy is in force. Ensure that the policy is kept in order by: Applying for adequate credit limit, Deposit Advance premium, Monthly declarations on time, Timely report of overdue, Approval for extension/conversion/ resale/ abandonment; as the case may be
  31. 31. Submission of report of Overdue • Definition of overdue by ECGC – Non-receipt of payment even after 30 days from the due date. • Filing of report of overdue under ECGC policies Immediately after 30 days but in any case latest by 15th Of next month in which the overdue occurred
  32. 32.  Ascertain the reason for non-payment and inform ECGC immediately  Follow-up payments with the buyer  Undelivered goods to be safeguarded with utmost priority  Seek prior approval of the ECGC in case buyer requests for extension in due date or tenor/ conversion in terms of payment  Seek prior approval of ECGC for resale, reshipment, abandonment etc in case the goods exported are not accepted by the buyer Submission of report of Overdue - Action on the part of the exporter
  33. 33. Unpaid bills to be noted and protested within the stipulated time To pursue recovery through DCA in consultation with ECGC Seek intervention of Embassy/ Consulate etc to resolve the matter No further shipments to be effected to the defaulted buyer unless permitted by the insurer Submission of report of Overdue – Action on the part of the exporter
  34. 34.  ECGC will consider approval for extension  Request from the buyer seeking extension in time. the original transaction is covered by a valid credit limit the exporter has declared the shipment and paid premium before the due date; and if the application for extension approval is received not later than 30 days from the original due date. Additional premium paid as per the case. Extension application duly filled by the exporter. Extension of due date
  35. 35.  Duly filled up application in appropriate form ( Maximum Liability., Credit Limit, Shipment Date, Value, Terms of payment, Buyer’s name/country, Declaration details, fate of goods, reasons for non- payment, extension sought),  Copies of order, invoice and Bill of Lading,  Buyer’s request for extension,  Correspondence exchanged with the buyer. ECGC requirements of Documents for processing Extension
  36. 36. Conversion in the terms of payment Such requests shall be considered only if the original transaction is covered by a valid credit limit the exporter has declared the shipment and paid premium before the due date; and if the application for extension approval is received not later than 45 days from the date of shipment.
  37. 37. Remit additional premium for such conversion Availability of DA limit on the buyer. if no DA limit is available on the buyer the exporter will to be advised to resort to resale to an alternate buyer or reshipment of goods Documents to be submitted are same as in extension cases Conditions to Conversion
  38. 38. Resale of goods If in spite of the best efforts of the exporter, the original buyer fails to accept the goods/documents the exporter should find out an alternate buyer for the goods and resell the goods normally after giving notice of resale to the original buyer preserving recourse for possible loss
  39. 39. Reshipment of goods  To minimise the loss, goods should be brought back, if the exporter finds it impossible to resell them  The expenses considered eligible for compensation in case of reshipment are  onward freight,  demurrage,  warehousing and  handling charges in the buyer’s country , return freight
  40. 40. Applications for approval will be considered only if, the original transaction is covered by a valid credit limit if the shipment was declared before the due date Premium for resale/reshipment intimation should be provided within the time-limit of 30 days Resale / Reshipment
  41. 41. Abandonment of goods The exporter may have no other option but to abandon the goods, if, It is not possible to sell the goods to alternate buyers and it is not viable to bring back the goods Prior approval is required Justification that this was the only course open to be given.
  42. 42. Applications for approval will be considered only if the original transaction is covered by a valid credit limit and if the shipment was declared before the due date Abandonment of goods should not be approved unless it could be established beyond reasonable doubt that the exporter is not at fault Approval of the Commercial bank/Central bank and other Government agencies as applicable will be the responsibility of the exporter Abandonment of goods (contd..)
  43. 43. Lodgment of claim Concept When an exporter has not received payment from the buyer for one or more of his shipments, the exporter can lodge claim with ECGC under the policies issued to him on the claim form applicable to the different policies Documents for processing Claims as given in the claim form
  44. 44. Lodgment of claim (contd..) • Waiting period for payment of claim Counted from the due date of the bill Or the event causing loss Insolvency of the buyer Default by the buyer by non- payment on due date Default by the buyer by non-acceptance of goods/ documents Transfer delay Diversion of voyage and causes Other Causes Cause Of Loss
  45. 45. 360 days from the due date of the concerned bill Last date for filing claim Lodgment of claim (contd..)
  46. 46. Different types of claims Policy claims can be divided into Commercial Claims -Non-acceptance of goods or documents of the buyer Or Default in making payment on due date -After acceptance Or -Due to insolvency of the buyer Political Claims -Transfer Delay Or - Other Political risks
  47. 47. Default / Repudiation Due to non-acceptance or default of the buyer – Safeguarding of the goods – Finding an alternative buyer for resale of goods – Noting and protesting – In case of disputes, preserve recourse against the original buyer – Obtain final judgement against the buyer in the court of law in the country of the buyer
  48. 48. Exporter to arrange for filing of claim with official liquidator as per the process of law To be complied with as soon as the exporter knows of the insolvency status of the buyer Due to Insolvency of the buyer
  49. 49. • The exporter has to produce valid documents to the effect that – The Bank has become insolvent • OR – Receiver has been appointed to manage its estate • OR – A resolution has been passed for voluntary winding up or orders passed by the govt. or Central bank or such other agencies suspending the operations of the LC opening bank Due to Insolvency or default of the LC opening Bank
  50. 50. Due to discrepancies in LC  In claims arising out of losses when payment is refused under LC due to discrepancies, the exporter has to produce copies of the correspondence from the foreign bank indicating the discrepancies  Such protection will be available only for transactions  where the goods are not delivered to the buyer.  The amount payable would be 90% of the actual loss incurred (including loss on account of reshipment or loss due to sale to alternate buyer)  subject to ceiling of 25% of gross invoice value  cover available in select policies
  51. 51. • The indemnification against refusal of payment due to LC discrepancies will be available for losses which in the opinion of the ECGC “does not have a material bearing on the risks covered and the cause of loss could be attributed to the buyer’s actions” Due to discrepancies in LC (contd..)
  52. 52. where, – goods are consigned directly to buyer and payment refused by the LC opening bank due to discrepancy – If the payment is refused by the LC opening bank citing discrepancies and if the goods are not accepted by the buyer (though goods were consigned directly), the exporter can avail of the limited indemnification HOWEVER… Due to Buyer Default in LC transactions
  53. 53. Due to Buyer Default in LC transactions (contd..) • If the buyer accepts the goods and refuses to pay, indemnification for the loss will be available subject to: – Exporter has taken necessary endorsement on the policy to cover insolvency or default of the bank. – Exporter holds valid credit limit on DA/OD terms as well as suitable limit on the opening bank – cover will be restricted to the limit available on the buyer – premium has been paid at the rate applicable for LC/ OD transactions
  54. 54. Political claims A. Transfer Delay Claims Transfer Delay Claims Bills paid by the buyer in local currency and the proceeds are delayed on account of foreign exchange difficulties Normally arise in countries which are placed in RCC category
  55. 55. Political Claims (contd..) B. Political Risks other than Transfer Delay Claims Here the claim is to be examined on the basis of documentary evidence in support of the claim subject to policy conditions
  56. 56. Claims will be considered subject to: – Compliance with the terms and conditions of the policy – Prompt action to minimise loss – Compliance with the terms of contract with the buyer – Prior approval for changes in the original contract. – All documents required are submitted along with claim form and claim form duly filled in. Claims
  57. 57. Scrutiny of claims • Cause of loss • Whether export was made as per order • If any dispute was raised by the buyer. If yes, whether final judgment obtained against the buyer by the exporter • If no, justification for waiver of legal action • Whether assignment of debt/composition arrangements has been agreed to by exporter • If yes, if insurer’s approval taken and terms of such approval
  58. 58. Scrutiny of claims (contd..) • Whether central bank approval taken • Present position of goods • Action taken to safeguard goods • Whether bill was noted and protested. If no, reasons • Whether ECGC’s approval was obtained for Conversion/ extension/ resale/ reimport/ abandonment/auction • Whether additional premium on above paid
  59. 59. Scrutiny of claims (contd..) • Whether shipment declared tally with bank certified statement of exports for last 2 years prior to first shipment in default • If not, whether satisfactory explanation and /or declaration with premium received. • Action taken by exporter through Debt Collecting Agent/ lawyer or through Embassy for recovery
  60. 60. Recovery Action • By the Exporter at the default stage or post claim stage in case of Commercial risks. • ECGC takes help of DCA’s and Govt. – to – Govt. delegations in case of Transfer Delay.
  61. 61. Exporters (Short-Term) – ST Policy Banks (Short-Term) – ST ECIB Business Profile FY 2018-19 Medium and Long- Term – MLT • No. of Products : 19 • Business Covered : 1,98,810 cr • No. of Covers : 12,300+ • Maximum Liability : 44,078 cr • No. of buyers in 239 countries : 1,22,238 • No. of MSME customers : 95% • No. of Products : 11 • Business Covered : 4,54,819 cr • No. of bank branches : 2950+ • Maximum Liability : 44,541 cr • No. of accounts Covered : 19,000+ • No. of MSME customers : 89% • No. of Products : 12 • Business Covered : 5,787 cr • No. of Covers : 240+ • Maximum Liability : 9,252 cr • No. of projects : 140+ • No. of countries covered : 40+
  62. 62. Financial Performance Particulars 2014-15 2015-16 2016-17 2017-18 2018-19 Premium 1362 1321 1268 1240 1247 Claims Paid 590 1123 885 1283 1013 Recoveries 160 114 131 186 151 Profit Before Tax 255 387 407 130 315 Dividend & Dividend Distribution Tax 58 78 87 18.08 72.33 Net Worth 2989 3279 3619 3737 4463 Paid Up Capital 1200 1300 1450 1500 2000 Investment Assets 6718 7185 8025 8486 10345 (Rs in cr)
  63. 63. Empowering India’s Exports www.ecgc.in Council for Fair Business Practices (CFBP) recognised and applauded ECGC with an award under Services Sector for practising, promoting and committing to fair business practises