ANALYSIS OF PREMIUM INCOME UNDER

ECIB WTPCG FOR BANKS

EXPORT CREDIT GUARANTEE CORPORATION OF INDIA

Presented By : Pranav Shrimali (28)

Brief History

Set up on 31st July, 1957 1957 - Export Risks Insurance Corporation (ERIC) 1964 - Export Credit & Guarantee Corporation Limited (ECGC) 1983 - Export Credit Guarantee Corporation of India Limited (ECGC) Wholly owned by the Government of India

ECGC An Export Promotion Institution

Provides credit risk covers to Exporters against non payment risks of the overseas buyers/buyers country in respect of the exports made. Provides credit Insurance covers to banks against lending risks of exporters Rated iAAA by ICRA. An ISO organization excelling in credit insurance services 5th largest credit insurer of the world 5 regional offices and 51 branches

ECGC

Policy

Guarantee

Exporters

Banks

How does ECGC help exporters?

Offers insurance protection to exporters against payment risks Provides guidance in export-related activities Makes available information on different countries with its own credit ratings Makes it easy to obtain export finance from banks/financial institutions Assists exporters in recovering bad debts Provides information on credit-worthiness of overseas buyers

Products offered to Exporters : Policies

Standard Policy

Shipment Comprehensive Risk Policy Small Exporters policy Specific Shipment Policy (short term)

Export Turnover policy Specific buyer wise policy Consignment export policy Global entity policy Single buyer exposure policy Multi buyer exposure policy Software project exports policy IT enabled (single customer) policy IT enabled (multi customer) policy SME Policy Customer specific policy (Tailor made)

Guarantees to Banks (ECIB)

Packing Credit Guarantee

Any loan given to an exporter for the manufacture, processing, purchasing or packing of goods meant for export against a firm order or Letter of Credit qualifies for Packing Credit Guarantee. The Packing Credit Guarantee of ECGC helps the exporter to obtain better and adequate facilities from their bankers. The Guarantees assure the banks that, in the event of an exporter failing to discharge his liabilities to the bank, ECGC would make good a major portion of the bank's loss. The bank is required to be co-insurer to the extent of the remaining loss.

Choice of ECIB covers

ECIB-Packing Credit Individual & WT ECIB-Bank-wise Packing Credit ECIB-Sector Packing Credit ECIB- Post-shipment Individual & WT ECIB-Export Performance ECIB-Production Finance ECIB-Export Finance

ECIB- Wholeturnover Packing Credit (ECIB-WTPC)

Purpose :

To indemnify any defaults in the Pre-shipment advances given by a Bank to all its customers (exporters) on all India basis.

Procedural aspects of ECIB-WTPC

Minimum number of accounts & premium applicable. - Higher percentage of cover with lower premium rate and reduction in procedural formalities. To seek approval for limit beyond specified/new accounts/asset classification beyond Std. Premium payable on average outstanding. Cover percentage- 50/60/75/90. Restricted Cover country cover.

ANALYSIS

Premium Earned under Whole Turnover Packing Credit Guarantee at Ahmedabad Branch
NUMBER OF BANKS WTPCG 31 NO. OF BRANCHES 167

Year

2008-09

2009-10

2010-11

Amount
% Change

Rs. 11,66,30,409/-

Rs. 10,78,39,383/(7.54)

Rs. 10,46,05,746/(3.00)

140000000 120000000 Premium (Rs.) 100000000

80000000
60000000 40000000 20000000

0
2008-09 2009-10 YEAR 2010-11

The Top 10 banks paying premium

Sr No.
1 2 3 4 5 6 7 8 9 10

Bank

2008 2009
4,52,73,431 1,99,25,689 99,58,366 1,00,17,942 35,98,088 23,70,554 10,03,421 41,98,207 20,02,499 13,68,695

2009 2010
4,26,03,835 2,13,20,239 80,49,960 52,36,994 32,34,935 31,35,139 6,49,720 44,75,440 28,45,052 21,53,032

2010 2011
3,00,38,222 2,19,40,390 95,78,564 56,91,023 46,47,102 43,73,196 40,75,028 40,69,352 38,14,025 33,90,558

% Change from FY 08-09 To FY 09-10 (5.90) 7.00 (19.16) (47.72) (10.09) 32.25 (35.25) 6.60 42.08 57.31

% Change from FY 09-10 To FY 10-11 (29.49) 2.91 18.99 8.67 43.65 39.49 527.20 (9.07) 34.06 57.48

SBI Ahmedabad Lho - For Sipcg Bank Of Baroda Punjab National Bank Bank Of India Union Bank Of India Oriental Bank Of Commerce Central Bank Of India Uco Bank Axis Bank (Formerly Uti Bank) Canara Bank

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

5,000,000 2010 - 2011 2009 - 2010 2008 - 2009

SBI Ahmedabad Lho - For Sipcg

Bank Of Baroda

Punjab National Bank

Bank Of India

0
Union Bank Of India Oriental Bank Of Commerce Central Bank Of India Uco Bank Axis Bank (Formerly Uti Bank)) Canara Bank

Premium income contribution of Top Ten Banks for the year 2010 2011.

FINDINGS

The overall premium income under the WTPCG category has decreased by 7.54% and 3% in the years 2009-2010 and 2010-2011 respectively suggesting a decreasing negative trend in premium earned under category. Premium adjusted has shown negative performance. The main cause for this is low exports, which ultimately has less takeover of PC and PS facility from bank is the global recession which has put an adverse effect on the advances granted by the bank to the exporters. The non-payments reported from overseas buyers have also forced banks to apply cautious approach while sanctioning finance. This has overall effect on the performance of branchs premium income earning.

contd.

Defaults of major buyers of credit facility also have effect on advances like MICRO FORGE LTD., GPT STEELS LTD., VEOL, SHREE RANGNATHA EXPORTS, ETC. The fluctuations in Steel and Cotton markets have impact on advances taken by export community from banks.

Many banks have restricted packing credit and advances.

contd.

There is a continuous decline in premium income earned from State Bank of India under SIPCG as there is a fall by 5.90% from financial year 20082009 to 2009-2010. This negative trend continued in financial year 20102011 by a further decline by nearly 30% which in turn have caused loss of premium income of more than 1.5 crores from State Bank of India alone.

Bank of Baroda has shown continuous growth of premium income by paying regular premiums but the pace of the growth is reduced by decline in premium rates on renewal of guarantees.
Central Bank of India showed an enormous jump of premium payments by 527% in year 2010-2011. The main reason behind this increase in premium payments is inclusion of ELECTROTHERM (I) LTD. as exporter in the Central Bank of India.

Reasons mentioned by the banks are :

The units are having sound liquidity position and hence not utilizing fund from the Banks. Most of the large industries have gone for public issue and generated good funds out of it. The reason for non-availment of limits by Adani group is that the funds raised through GIP and right issue. Currently they are doing only coal trading. Other operations are divested in other group companies. Most of the clients from this region are having offices in Mumbai and they are availing the advances from Mumbai based branches. Suzlon Groups limit approval has made it move out of the limit sanctioned for the branch and has been shifted to the Mumbai based Project Export branch. This made the branch lose more than 150 lakhs of premium alone from a single company.

SUGGESTIONS

The best way to get and keep customers is to constantly figure out how to give them more for less. The premium rate should be competitive enough so that the exporters dont feel as an additional burden to them. Continuous follow up with bank branches who have stopped paying premiums and sending declarations. In order to get maximum out of the export industry, Small and Medium Enterprises should be targeted for the branchs growth and success and to maintain the position. To make available the negative list of buyers to all the policyholders & banks.

contd.

It should simplify the claim settlement procedure. Cover on poor countries can be provided with higher premium. Time to time changes should be made in schemes according to the needs of the customers (customization of policies & guarantees). Formalities for policy issue & guarantees should be as simple and less in number as possible. ECGC can conduct exporters & bankers meet and seminars which will also increase its awareness.