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  GUARANTEES TO BANKS - ECGC
  Suitability
 

  • These schemes are suitable for banks which provide credit facilities, guarantees and other export related finances to exporters.
  Salient Features
 

  • Various guarantees offered by ECGC to banks are:

    • Packing Credit Guarantee

    • Export Production Finance Guarantee

    • Post-Shipment Credit Guarantee

    • Export Finance Guarantee

    • Export Performance Guarantee

    • Export Finance (Overseas Lending) Guarantee

    • Packing Credit Guarantee:  It helps the exporter to obtain better and adequate facilities from their bankers. The Guarantees assure the banks that, in the event of an exporter failing to discharge his liabilities to the bank, ECGC would make good a major portion of the bank's loss. bank is required to be co-insurer to the extent of the remaining loss. Features of this guarantee are:

    • Any loan given to an exporter for the manufacture, processing, purchasing or packing of goods meant for export against a firm order or Letter of Credit qualifies for Packing Credit Guarantee.

    • Pre-shipment advances given by banks to parties who enter into contracts for export of services or for construction works abroad to meet preliminary expenses in connection with such contracts are also eligible for cover under the Guarantee.

    • The Guarantee, issued for a period of 12 months based on a proposal from the bank, covers all the advances that may be made by the bank during the period to an individual exporter within an approved limit.

    • Approval of ECGC has to be obtained if the period for repayment of any advance is to be extended beyond 360 days from the date of advance.

    • Whole-turnover Packing Credit Guarantee (WTPCG) can be issued to banks which wish to obtain cover for packing credit advances granted to all its customers on all-india basis. Premiums are lower and higher percentage of cover is offered under this option.

    Export Production Finance Guarantee:The purpose of this Guarantee is to enable banks to sanction advances at the pre-shipment stage to the full extent of cost of production when it exceeds the f.o.b. value of the contract/order, the differences representing incentive/duty drawback receivable.

    Post-Shipment Credit Guarantee: Banks extend post-shipment finance to exporters through purchase, negotiation or discount of export bills or advances against such bills. The post shipment credit guarantee provides protection to banks against non-realisation of export proceeds and the resultant failure of the exporter to repay the advances availed. Features of this guarantee are:

    • Individual Post-Shipment Credit Guarantee can also be obtained for finance granted against L/C bills, even where an exporter does not hold an ECGC Policy, provided that the exporter makes shipments solely against Letters of Credit.

    • This guarantee can also be issued on whole turnover basis wherein the percentage of cover under shall be 90% for advances granted to exporters holding ECGC policy. Advances to non-policyholders are also covered with the percentage of cover being 65.

    Export Finance Guarantee:  This guarantee covers post-shipment advances granted by banks to exporters against export incentives receivable in the form of cash assistance, duty drawback, etc.

    Export Performance Guarantee: This is akin to a counter-guarantee to protect a bank against losses that it may suffer on account of guarantees given by it on behalf of exporters.

    • In the case of bid bonds relating to exports on medium/long term credit, overseas projects, and projects in India financed by international financial institutions as well as supplies to such projects, guarantee is granted on payment of 25% of the prescribed premium. The balance of 75% becomes payable by the bankers if the exporter succeeds in the bid and gets the contract.

    Export Finance (Overseas Lending) Guarantee: Its protects the banks providing foreign currency loans to the contractors executing overseas project, against the risk of non-payment by the contractor.

  Benefits
 

  • Transfer Guarantee indemnifies the insured bank for any loss due to the insolvency or default of the foreign bank opening Letter of Credit or due to certain political risks such as war, transfer delays or moratorium, which may delay or prevent the transfer of funds to the bank in India.

  • Overseas investment insurance: The risks of war, expropriation and restriction on remittances are covered under the scheme.

  • The Exchange Fluctuation Risk: The loss or gain within a range of 2 percent of the reference rate will go to the exporter's account. If the loss exceeds 2 percent, ECGC will make good the portion of loss in excess of 2 percent but not exceeding 35 percent of the reference rate.

  Premium
 

  • Transfer Guarantee:  The premium rates depend on the country of export and the tenor of L/C.

  • The Exchange Fluctuation Risk:  The rate of premium is 40 paise per Rs.100/- per year. Ten percent of the total premium payable and premium for the first two years should be paid at the time of issue of the Policy. Thereafter, the annual premium will have to be paid in such a manner that premium for two years ahead is always kept paid to the Corporation.
  Requirements
  Completed Proposal form.
  Recommendations
 

  • These scheme are targeted at specific audiences such as banks, investors in foreign countries and exporters taking up long term projects abroad, covering distinct risks faced by them. Hence these schemes are recommended to those specific audiences.
   

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Contact

  • Agricultural and Processed Food Products Export Development Authority (APEDA)
    (Ministry of Commerce & Industry, Govt. of India)

  • NCUI Building 3, Siri Institutional Area, August Kranti Marg, New Delhi - 110 016
    Phone : 91-11-41486013, 20863919, 20867008, 20867007