MUMBAI: Indian apparel exporters, who contribute over $10 billion to the country’s exports earnings, have been hit by a double whammy. Even as they grapple with sluggish overseas demand, they are finding it difficult to export to new customers, as insurance providers are denying credit insurance cover. Financing through factoring — a facility where a financier provides upfront cash against export receivables — is also not available.
“The economic crisis has raised serious questions about the viability of insurance-backed factoring. International factoring has taken a hit, as private credit insurance companies are not settling legitimate claims while some of them have even stopped providing cover altogether,” said Arvind Sonmale, MD of Global Trade Finance, a factoring company in which SBI owns a 92% stake.
Non-life companies, which were earlier providing credit insurance, are now reluctant to provide this cover after large importers went bankrupt. Global apparel retailers that have filed for bankruptcies include Mervins, Steve & Berry, Quelle and Karstadt. Others, such as 4004 Incorporation, Ann-Taylor, Foot Locker and Fashion Locker, have downsized their business network.
State-owned specialised insurer Export Credit and Guarantee Corporation of India (ECGC), the market leader in the business, has turned cautious now. “Due to increasing rate of defaults and falling demand, banks and insurance companies have become more cautious while providing credit and factoring facility to exporters,” said M Vaidyanathan, GM, exports services at ECGC.
ECGC is the world’s fifth-largest credit insurer in terms of coverage of national exports. Besides ECGC, there are other general companies that were providing credit insurance cover through a tie-up with MNCs. These include ICICI Lombard, which had tied up with Coface. Bajaj Allianz General Insurance, which had a tie-up with Euler Hermes, and New India Assurance, in partnership with Atradius. ICICI Lombard declined to comment.
However, a source in the company said the firm has turned selective due to the ‘shaky’ market scenario. When contacted, Sumit Datt, VP, credit wing at Bajaj Allianz, said: “We have not stopped providing credit cover, but precautionary measures are the need of the hour. Depending on the risk, we customise our product in accordance with the customers requirement.” Clothing Manufacturers Association of India has requested IRDA to intervene into the matter, as exporters are hit badly due to the downturn.
In a letter addressed to the IRDA chairman J Hari Narayan, the CMAI president Rahul Mehta said, many small exporters are being denied their rightful claims by the banks and factoring companies. In the past 15 months, exports have been on a continuous downtrend and further non-settlement of the exporters' claims could severely dent their cash-flow and working, Mr Mehta added.
According to the data released by the Apparel Export Promotion Council (AEPC), India exported garments worth $2.41 billion in the quarter ended June 30 as compared to $2.85 billion it earned in the same period last year. In June, the garment exports fell 10.2% to $870 million from $968 million due to the dwindling demand in the key foreign markets. While apparel exports from India skid off at $10.17 billion during 2008-09, 14% short of the targeted $11.62 billion. However, it grew by 4% from $9.68 billion achieved a year before.
Source : The Economic Times