RBI extends forex benefits to credit risks settled by pvt players

So far, only claims settled by the Export Credit Guarantee Corporation (ECGC) were considered for discharging forex obligations in case a payment from the overseas buyer was not received by an exporter.

The move is expected to boost the sales of credit insurance covers offered by New India Assurance, Bajaj Allianz, ICICI Lombard, Iffco-Tokio General and Tata-AIG.

These insurers are likely to reap the benefit of Goods Receipt compliance (GR) with respect to export consignments insured by them for overseas credit risks. GR compliance is an RBI requirement to ensure that export proceeds are received in India as foreign currency.

The RBI has permitted banks to write off the export bills and delete them from their account books in case they were settled by any insurance company registered in India.

The FEMA and banking laws make it mandatory for exporters to bring in foreign currency during the stipulated period. Once an exporter receives payment from the overseas buyer, he needs to get his GR form released by the bank.

In case the overseas buyer defaults, the exporter approaches the insurance company for settlement of claims. Till now, claims paid by ECGC alone were recognised for the purpose of compliance of GR requirements and the resultant writeoff, under the FEMA and banking laws.

"The RBI's move will provide relief to exporters and also, as a by-product, bring in a level playing field among the insurers. Claims settled by all insurers would be considered as a release of good receipt form," said an insurance company executive.

Credit insurance policy covers the payment risk arising out of non-payment by overseas buyers and countries for the goods and services exported from India.

Credit insurance usually pays around 80-90 per cent of an invoice or receivable that remains unpaid as a result of protracted default, insolvency or bankruptcy of the overseas buyers or risks specific to the importing country such as war, civil war, restriction on remittances, ban on the import of goods etc.

The policy is bought by SMEs and other business entities to insure their accounts receivable from losses following the insolvency of debtors.

The RBI had been receiving representations from exporters and trade bodies for extending the