New India Told Not To Softpedal Defaults

Finance minister Yashwant Sinha today warned New India Assurance Company against "making a warm blanket of security for those who do not deserve as there is a tendency in our country to default and hold back on payments that are due." He said this while launching a new product of New India, Business Credit Shield, which will allow the Indian manufacturing companies to insure against their credit receivables.

Sinha blamed the tendency of corporates to default on payments for the plight of the banking sector which is facing huge non-performing assets (NPAs).

For the first time, an insurance cover has been made available to industrialists against defaults in payment of domestic trade receivables. The business credit shield risk cover will protect against insolvency of buyers. The public sector insurance outfit through its vast 1,000-odd branch network will also actively participate in the recovery of dues.

 

New India chairman-cum-managing director K N Bhandari said the introduction of this product will help the trade and industry to expand its market both domestically and internationally. Many industrialists have been asking for this type of cover for domestic trade, especially at a time when industries are facing a downturn in the economy and have no protection to secure themselves against defaults.

Credit insurance is popular product in the west with total premiums standing at $ 4.5 billion worldwide with a 5 per cent annual growth, said Bhandari. Such a risk cover is currently available only in the overseas market, and the Export Credit Guarantee Corporation of India Ltd (ECGC) offers credit insurance cover only to exporters.

With receivables protected and the risk of non-payment reduced, New India officials stated the banks and financial institutions will offer more funds at better rates. Reserve Bank of India deputy governor Vepa Kamesam said the introduction of credit insurance would enhance securitisation deals. Sinha also said the risk cover would help the trade to conduct business better both within and outside the country.

New India has tied up with the German-based Gerling Credit Insurance Group, the largest credit insurance outfit with 95 offices in 32 nations, to capitalise on the global insurance company's exclusive database of buyers. This is based on Gerling monitoring the economic situation of the trading sector throughout the globe.

Through the strategic alliance with Gerling, New India will get reinsurance and technical support. The public sector insurance outfit will also get the exclusive database of the overseas traders as Indian manufacturers export overseas. New India will replicate a similar database for the Indian market based on its relationship with major corporates through its 1,123 branch network.