Export Credit Insurance For Banks Surety Cover (ECIB-SC)
Export Credit Insurance for Bank
Export Credit Insurance For Banks Surety Cover (ECIB-SC)
Exporters are often called upon to execute bonds duly guaranteed by an Indian bank at various stages of export business. An exporter who desire to quote for a foreign tender may have to furnish a bank guarantee for the bid bond. If he wins the contract, he may have to furnish bank guarantee to foreign buyers to ensure due performance or against advance payment or in lieu of retention money. Further, for obtaining import licenses for raw materials or capital goods, exporters may have to execute an undertaking to export goods of a specified value within a stipulated time, duly supported by bank guarantees. Bank guarantees are also furnished by exporters to the DGFT, Customs, Central Excise or Sales tax authorities for the purpose of clearing goods without payment of duty or for exemption from tax for goods procured for export. Exporters also furnish Guarantees in support of the export obligations to Export Promotion Councils (EPCs), Commodity Boards (CBs), The State Trading Corporation of India (SCI), The Minerals and Metals Trading Corporation of India (MMTC) or recognised Export Houses. An export proposition may be frustrated if the bank is unwilling to issue the Guarantee. The Export credit Insurance for banks (Surety Cover) is aimed at meeting such situations. The ECIB (SC) which is in the nature of indemnity to the bank is issued to protect the bank against losses that it may suffer on account of guarantees given by it on behalf of exporters. This protection is intended to encourage banks to give guarantees on a liberal basis for export purposes.
Cover under ECIB (SC) can be considered to those banks whose exporter clients have Standard Asset Classification with an acceptable credit rating weightage/marks/score of 50% and above. The banks intending to seek ECIB (SC) cover for an exporter client should have sanctioned certain working capital limit facilities for export in favour of their exporter client. In other words, exporter clients that are ‘NEW’ accounts and/or their credit rating weightage/marks/score is less than 50% are not eligible for ECIB (SC) covers.
Eligible Bank Guarantees for Cover:
The types of guarantees that are eligible for our indemnity under short term are: (a) Bid Bond Guarantee: This guarantee is issued by a bank on behalf of its exporter clients who desire to bid for a foreign tender. (b) Performance Guarantee: If the exporter wins a contract in the global tender, he may have to furnish a bank guarantee for his due performance. In this context, his bank may furnish the due performance guarantee to the foreign buyer. (c) Letters of Credit opened for purchase or import of raw materials in respect of export transactions. (d) Bank Guarantees furnished by exporters to DGFT, Customs, Central Excise or Sales Tax Authorities for the purpose of clearing goods without payment of duty or for exemption from tax for goods procured for export. (e) Bank Guarantees furnished in support of the export obligations by the exporters to Export Promotion Councils, Commodity Boards, the State Trading Corporation of India, the MMTC or Recognised Export Houses. Note:- The underlying contracts for issue of Bid Bond and Performance Guarantee should be purely for supply of goods for which payments due are to be received within a maximum period of 180 days. However, where the contracts are for both supply of goods and services or for providing services only, the relative proposals will be dealt with only by Project Exports Branch (PEB), even if the payments are to be received within 180 days.
Period Of Cover:
The validity period of the ECIB (SC) Insurance Cover shall be the same as the period of the guarantee being covered. However, where the period of the guarantee is more than one year, cover shall be issued for a period not exceeding 12 months from the date of commencement of ECIB (SC) cover, subject to further extension on completion of 12 months. Banks may seek extension where the validity period of the guarantee covered under the ECIB (SC) cover exceeds the period of Insurance Cover. Banks request for such extensions would be examined, based on the latest position of the said ECIB (SC) cover and the Corporation shall use its discretion to extend the validity period of the ECIB (SC) cover subject to payment of additional premium and compliance of such other conditions, as may be stipulated by the Corporation at the time of extension of period of cover, depending upon the circumstance of the case with due assessment of risk at the material point of time. The extension of the ECIB (SC) after the one year period is not automatic, even though the bank had issued the bank guarantee for a period exceeding one year.
Rs 1000/- per application shall be the processing fee.
Risks covered under the insurance cover are the insolvency and/or protracted default of the exporter to repay his debt to the bank which is covered under the ECIB(SC).
Percentage Of Cover:
The rate of premium payable on the value of the Insured debt shall vary depending on the banks internal credit rating weightage / score / marks of the exporter client, as under:- For Credit Rating Score of 50% and upto 70% – 12 Paise For Credit Rating Score of above 70% and upto 90% – 11 Paise For Credit Rating Score of above 90% – 10 Paise.
Maximum Liability is the amount up to which claim under ECIB (SC) issued can be considered. Maximum Liability shall be fixed at 75% of the Guarantee value or 75% of the insured debt, whichever is lower.
Important Obligation Of The Bank:
Premium is payable in advance. Approval of the Corporation for any extension in the period of the bank guarantee to be obtained. If the exporter fails to meet the payment as and when the guarantee is invoked or when it falls due under L/C, necessary steps to be taken for recoveries, including recall of advances and institution of legal proceedings. Default to be reported within 30 days from the date of recall or within 4 months from the expiry of ECIB-SC whichever is earlier. If not recovered, filing of claim within 6 months of the Report of Default. Recovery action after payment of claim and the subsequent sharing of recovery.
The above ECIB covers would be issued and serviced by nearest offices of ECGC to the bank branch.
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