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Vishwanath Kulkarni
C. Shivkumar

Bangalore, Nov. 26 Anticipating an escalation of payment risks from troubled overseas customers, especially in the telecom sector, Indian software exporters are looking at credit risk insurance (CRI).

This is one of rare occasions that the software exporters are planning to take CRI cover as the economic situation worsens in the US, the largest IT services market, from where they earn over half of their revenues.

CRI provides insurance cover to suppliers against payment defaults from buyers.

Reeling under the impact of the economic slowdown, telecom equipment makers such as Nortel Networks and Motorola Inc have posted losses and have embarked on a restructuring exercise, trimming their workforce to rein in cost structures. Handset makers Nokia and Sony Ericsson have also announced job cuts as part of cost-cutting exercise.

“We are planning to take CRI cover and have been looking at that for months together now,” said Ms Neeta Revankar, Chief Financial Officer at the Bangalore-based Sasken Communication Technologies Ltd, which develops software for handset makers and telecom equipment vendors.

Sasken, which serves customers such as Nokia, Nortel and Motorola, is in talks with CRI providers such as the state-owned Export Credit Guarantee Corporation (ECGC) and private players such as ICICI Lombard General Insurance Company Ltd and Bajaj Allianz General Insurance Company Ltd.

ECGC has a market share of over 90 per cent in CRI. So far, only commodity exporters and recently suppliers of auto components have been taking ECGC cover.

“We will go ahead with them as soon as we finalise things,” Ms Revankar said, without disclosing the timeframe or the quantum of the cover.

Sasken’s September quarter profits fell by a fourth, while its revenues grew by five per cent over previous quarter. Sasken’s mounting receivables as of September stood at Rs 161 crore, twice that of its cash and cash equivalents of Rs 82 crore.

The chase for such CRI cover assumes significance as none of the IT companies’ sales to foreign customers are backed by letters of credit or any form of bank guarantees. This was because most of the US buyers were highly rated with extremely low credit risks earlier. But customer credit risks have mounted during the last few months.

Infosys Technologies Ltd, which earns about a fifth of its revenues from telecom sector, does not have any plans to take CRI cover as its receivables were well under control.

“The costs will be too high to take such a cover at this point of time. Instead we are working with individual clients to see that payments are not delayed,” said Mr V. Balakrishnan, Chief Financial Officer, Infosys.

Some private sector players, such as Bajaj Allianz, have indicated that in the case of CRI covers for automobile giants in the US, premiums could reflect payment risks. This essentially implied that as payment risks rise, premiums could follow. Currently, premium charged by the dominant player ECGC is between one per cent and five per cent of the projected turnover.

Satyam Computer Services and MindTree Ltd said they have not taken such a cover. “We are not anticipating any such issues and are constantly in touch with our customers,” said Mr Rostow Ravanan, CFO, MindTree.

More Stories on : Exports & Imports | Software | General Insurance

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