Export Credit Guarantee Corporation, which provides insurance cover to exporters, expects claims payout to rise around 17 per cent this financial year.
“This year the number of defaults will be higher and our claims outgo is expected to increase due to the global scenario. The effect of the global meltdown on the claims will be more prominent only from June,” said Mr A. V. Muralidharan, Chairman and Managing Director, ECGC.
ECGC expects the claims settled to rise to Rs 500 crore-525 crore in the current financial year against Rs 450 crore in 2008-09 and Rs 420 crore in 2007-08.
Sectors such as textiles, readymade garments, leather, handlooms, handicraft and pharma are witnessing rising defaults, he said.
However, despite anticipating more defaults, ECGC is not planning to increase the premium it charges for a cover.
“In 2006-07, rupee appreciated against the dollar; we voluntarily reduced premiums rates across the board by 10 per cent. This year, even though the position has improved during the last financial year, we have maintained the reduced premiums. We will not revise the premium rates as the main purpose of the organisation is to facilitate the exports. Status quo will be maintained,” he said.
No ratings revision
ECGC is not looking at revising ratings of countries, unlike its Western counterparts. ECGC classifies countries under seven broad categories depending on their political and financial stability.
While countries such as the US are in the highest category, Cambodia, Benin and Albania are rated most risky.
“If we downgrade rating of countries, companies will be forced to shell out more money to take a cover. Already when industry is sick, what is the point of making it further sick. If the situation warrants, we may think about revision at a later stage,” he said.
The US, Europe and the UAE are the major importers of Indian goods and thus account for the maximum claims.
Before the meltdown, the claims from these countries were at a reasonable level. Now because of the meltdown, the payments have been affected. Currently, these countries account for around 80 per cent of the claims, Mr Muralidharan said.
ECGC collected Rs 745.5 crore in 2008-09, a growth of 11.39 per cent. Of the estimated $165- billion Indian export market, ECGC provides cover of only around $12 billion.
The corporation is looking to concentrate on its existing business and has no diversification plans.
“We want to expand and spread the domestic credit insurance business that we entered last year. Currently, it contributes a very small proportion of our premiums,” Mr Muralidharan said.
ECGC has also put its factoring business on hold as it is awaiting the Reserve Bank of India approval.
"Till we get the RBI licence, we are only continuing the factoring arrangement with our existing customers and not taking any new proposals", he said.
ECGC, which has a solvency ratio of 18.5 times against the mandatory 1.5 times, has a paid-up capital of Rs 900 crore and an authorised capital of Rs 1,000 crore.
"If the Government agrees to provide more capital, then we expect another infusion of Rs 100 crore. Though we have adequate reserves, we will need more capital since the claims are set to rise," Mr Muralidharan said.
Source : Business Line