Ministry of Commerce & Industry through Export Credit Guarantee Corporation (ECGC) has introduced a new Export Credit Insurance Scheme (ECIS) called NIRVIK to enhance loan availability and ease the lending process.
About NIRVIK
- The scheme was announced by the Finance Minister Nirmala Sitharaman to boost exports on September 14, 2019 in New Delhi.
- The gems, jewellery and diamond (GJD) sector borrowers with limit of more than Rs. 80 crore will have a higher premium rate as compared to non-GJD sector borrowers of this category due to the higher loss ratio. The ECGC cover provides additional comfort to banks as the credit rating of the borrower is enhanced to AA rated account.
- Enhanced cover will ensure that Foreign and Rupee export credit interest rates will be below 4%and 8% respectively for exporters.
- Under ECIS, insurance cover percentage has also been enhanced to 90% from the present average of 60% for both Principal and Interest.
Background and ECIS
- Due to the global slowdown and rising NPAs, banks are in stress and therefore require additional support.
- In order to facilitate banks further Ministry of Commerce & Industry has enhanced Insurance cover for Banks up to 90% for the working capital loans and moderation in premium incidence for the MSME sector.
- Enhanced cover will ensure that Foreign and Rupee export credit interest rates will be below 4% and 8% 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).
- The cover percentage has been enhanced to 90% from the present average of 60% for both Principal and Interest.
- 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% 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.
- Other procedural aspects such as reporting or seeking approval of limits, monthly declarations with premium, extension in due date under Pre-Shipment/Post-Shipment, Report of Default, Lodgment of Claim, placing of borrower in Specific Approval List (SAL), Sharing of recovery, Checking of Buyers Specific Approval List (BSAL) and Checking of Restricted Cover Category (RCC) Country shall continue as per the existing terms and conditions of cover of ECGC.
- Banks shall continue to adhere to the RBI and their internal guidelines relating to export finance backed by enhanced due diligence on the borrower.
- The proposed cover will bring down the cost of credit due to capital relief, less provision requirement and liquidity due to quick settlement of claims and will ensure timely and adequate working capital to the export sector.
- 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.
