News 124 views February 26, 2020

Rise in Insurance Coverage to Back Exporters: SBI

Insurance coverage is an essential requirement by all, be it individuals or corporates providing goods and services. Export is no exception to this fundamental rule of business and therefore Indian exporters are being provided with the necessary coverage by banks and other financial institutions. However, off late, there is an issue that has been observed resulting in challenges in recoveries from the exporters.

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Issue for Exporters

The export trade in India is controlled by the Directorate General of Foreign Trade or DGFT and its provincial offices, operational under the Ministry of Commerce and Industry, Department of Commerce, Government of India. All the rules and actions are needed to be followed by exporters which are declared by the DGFT from a timely basis as and when needed. Guidelines of FEMA- Foreign Exchange Regulatory Act also gets followed. The amount which represents the complete export value of the exported goods will be received via an Authorized Dealer Bank as per the rules stated in the Foreign Exchange Management -Manner of Receipt & Payment Regulations, 2000 in the below ways:

  1. Demand draft, pay by order, bankers or personal cheques.
  2. Foreign currency notes or travellers’ cheques in foreign currency from the buyer
  3. Payment made out of the funds that are deposited in the Foreign Currency Non-Resident Account -FCNR or Non- Resident External Account or NRE account which is being held by the buyer.
  4. Buyer’s International Credit Cards.

SBI Chairman Mr Rajnish Kumar added that the basic issue lies with the technique of bills or the receivables of exporters and that area needs to be changed. SBI’s experience in terms of receivables concerning the associates or the subsidiaries is very unpleasant in which although the bills are raised but the businesses are being directed via associates or the subsidiaries. Although guarantee or the collaterals provided by the exporters give some relief to the bankers while financing the exporters, but the challenges remain when it comes to recovery.

The solution to the issue

The answer or the resolution which can be seen at this point in time is to enhance the coverage of the insurance from ECGC- Exports Credit Guarantee Corporation of India to 90%. This, in turn, will help the banks and other financial institutions to lessen the collaterals which need to be provided by the exporters. In this way, the cost of collateral will be reduced and both the exporters and banks will be in a better position.

The second solution to the above-mentioned issue is to extend the Interest subvention for all MSME units. The method of Interest subvention to all MSME organizations- Micro, Small, and Medium Enterprises also is another way of battling this issue. Interest Subvention is providing a subsidy or a rebate in the interest rate. These grants are primarily engrossed in significant sectors like lending, education, housing, agriculture, etc. The main aim of the Government is to provide these subventions for the overall wellbeing of the end customers like the farmers or students, who are an integral part of any developing economy. The arrangement helps to encourage both industrial and service enterprises to upsurge their productivity and to incentivize MSMEs for onboarding from the GST standpoint, which in turn helps in the reinforcement of the economy, thereby dropping the cost of credit.

Conclusion

Therefore, raising the insurance coverage for exporters will help the exports to focus more on the basics and other means of exports and also will ease out the exporters’ finance method which in turn will help the Indian export business as a whole.

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