Commerce Ministry through ECGC raises Insurance cover for banks up to 90% for Working Capital Loans

New Delhi: Union Minister of Commerce & Industry and Railways, Piyush Goyal has said that the government has enhanced Insurance cover for Banks up to 90 percent for the working capital loans and moderation in premium incidence for the MSME sector.

The cover percentage has been enhanced to 90 percent from the present average of 60 percent for both Principal and Interest.

Due to the global slowdown and rising NPAs, banks are in stress and therefore require additional support. Finance Ministry has taken steps towards merger of Banks and has infused additional capital to the banks, an official release said.

The enhanced cover will ensure that Foreign and Rupee export credit interest rates will be below 4 percent and 8 percent 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 not only the principal outstanding but also for the unpaid Interest (for a maximum of two quarters or the NPA date, whichever is earlier).

A single cover document for ECIS shall be issued covering both the Pre-shipment and Post-shipment advances unlike the present two different documents being issued by ECGC.

The scheme envisages simplified procedure for settlement of claim and also for provisional payment up to 50 percent within 30 days on production of proof of end-use of the advances in default by the Insured Bank.

The ECIS support shall be in force 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 the premium rates will be moderated to 0.60 per annum and for those exceeding Rs.80 crore, it will be 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.

Under the scheme, inspection of bank documents and records by ECGC officials shall be mandatory for losses exceeding Rs.10 crore as against the present Rs.1crore.

ECGC is a fully Government of India owned company established in the year 1957 to promote exports by providing credit insurance services. ECGC provides Export Credit Insurance to Banks (ECIB) to protect the Banks from losses on account of export credit at the Pre and Post-Shipment stage given to exporters due to the risks of insolvency and/or protracted default of the exporter borrower.