 "N Shankar")
Credit-risk insurer Export Credit Guarantee Corporation of India (ECGC) is set to offer direct factoring for micro, small and medium enterprises (MSMEs) this financial year. N Shankar, chairman and managing director of ECGC, talks to M Saraswathy about the company's strategy. Edited excerpts:
ECGC's profit after tax for FY14 rose 48.5 per cent. Was this purely due to business growth?
The rise in profit is due to business growth. We look at volume play and do not intend to increase premia. We have been providing incentives to performers and disincentives to non-performers. In the past three years, we have been growing in terms of profit before tax. Unless there are untoward incidents, we will maintain this growth.
You have had higher claims in sectors such as gems & jewellery.
In the jewellery sector, there were more claims from banks. So, this year, we have taken more interventions and put more conditions on banks. Hopefully, we will not have such claims in the future. Banks have to ensure exporters don't concentrate on a particular buyer. Banks should check the credit-worthiness of a buyer and ensure the credit report is not older than a year.
We also have a watch list —if any buyer has defaulted to an exporter, we put his/her name on the list. This list is given to all cover holders so that they can avoid these buyers. If there is any incremental exposure, we will shift it to individual cover to reduce concentration risk.
Last year, ECGC revised the model of credit risk rating. How has that fared?
Earlier, we had the same rating for the short term and medium to long term. Now, short-term and medium-to long-term ones will be rated separately. Within that, we have introduced new features. We have cut on sub-parameters and tweaked the weightage for parameters and introduced a concept called policy parameters. Also, we lay emphasis on ECGC's experience in a particular country. Here, we can upgrade or downgrade by a notch. If a country is brought under United Nations sanctions, we bring it down by a notch.
We also do benchmarking and compare our rating with international ratings. A committee decides which one should finally be taken. The rating will be reviewed every quarter if there is any significant change in any parameter. Mandatorily, it is reviewed on an annual basis.
ECGC's authorised capital has been increased to Rs 5,000 crore. Are you looking for additional capital?
The authorised capital was increased from Rs 1,000 crore to Rs 5,000 crore. Subsequently, the government gave us Rs 100 crore. We would like to increase the capital so that we are able to take more risks. The capacity to increase net worth is limited. If we have to take huge risks, we need additional capital. If we get more capital, we can have higher exposure on a country or a buyer through the direct policies we issue; we can also increase the per-exporter cover taken by the banks.
In FY14, you increased your reinsurance exposure to foreign reinsurers. Will it be increased this year, too?
In 2013-14, we had three foreign reinsurers. For 2014-15, we have tied up with six foreign reinsurers, and it is much more widespread.
The company is planning to launch direct factoring for MSMEs. Will cover be provided for factoring companies in the future?
ECGC will provide a direct factoring facility for MSMEs this financial year to help them meet their working capital requirements without having to approach banks. Factoring is a financial management service in which a business sells its accounts receivable at a discount to a third-party funding agency to raise capital.
We are also looking to provide cover to factoring companies. We're applying to the Insurance Regulatory and Development Authority for this.
Does ECGC have any further fund requirements?
The corpus of the National Export Insurance Account has to be increased. The account has been set up by the government of India and is operated by ECGC to provide adequate credit insurance cover to protect long- and medium-term exporters against political and commercial risks of the foreign country and the buyer/bank concerned. We are trying to increase the corpus from Rs 1,200 crore so that we can cover project exports to other countries and take larger risks.
