Saturday, October 1, 2022

Govt gives banks 90% insurance cover to aid MSME lending

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New Delhi: In line with the announcement made by Finance Minister last week, the government has enhanced insurance cover for banks up to 90% to aid lending to MSMEs. The move will cover working capital loans and moderation in premium incidence for the MSME sector. The stimulus package will catalyze banks to enhance volume of export credit lending particularly to the MSME Sector with optimal pricing due to capital and risk optimisation.

At a press conference on Monday, Union Minister of Commerce & Industry Piyush Goyal shared the details of the Export Credit Insurance Scheme (ECIS) in New Delhi. The scheme was announced by Finance Minister Nirmala Sitharaman as part of measures to boost exports, on September 14.

‘Banks require additional support’

Due to the global slowdown and rising NPAs, banks are in stress and therefore require additional support. The Finance Ministry has taken steps towards merger of banks and has infused additional capital into banks. Enhanced cover will ensure that Foreign and Rupee export credit interest rates will be below 4 percent and 8 percent respectively for exporters.

Existing ECGC covers will continue

The existing covers issued by Export Credit Guarantee Corporation of India (ECGC) will continue for the existing customer banks and similar covers will also be made available to all other banks. All standard accounts covered under ECGC as on the date of transition, shall be eligible for cover under the ECIS.

What has changed?

The scope of insurance cover has been enlarged to cover not only the principal outstanding but also for the unpaid Interest (for a maximum of two quarters or the NPA date, whichever is earlier). The cover percentage has been enhanced to 90 percent from the present average of 60 percent for both principal and interest.

A single cover document for ECIS shall be issued covering both the pre-shipment and post-shipment advances unlike the present two different documents being issued by ECGC.

Scheme aimed at simplifying settlement of claim

The scheme envisages simplified procedure for settlement of claim and also for provisional payment up to 50 percent within 30 days on production of proof of end-use of the advances in default by the insured bank.

The ECIS support shall be in force for a period of 5-years and on conclusion, the standard ECGC covers will be available for Banks with its regular features. For accounts with limits below Rs 80 crore, the premium rates will be moderated to 0.60 per annum and for those exceeding Rs 80 crore, it will be 0.72 per annum for the same enhanced cover. Banks shall pay premium to ECGC on monthly basis on the principal and interest as the cover is offered for both outstandings.

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