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C. Shivkumar
Vishwanath Kulkarni

Bangalore, Nov. 2 A clutch of IT majors, including Wipro, have approached the Export Credit Guarantee Corporation (ECGC) for credit risk insurance cover.

The move to take credit risk insurance cover comes as bank failures in the US have mounted in the recent months. Indian IT companies have a large number of clients in the banking, insurance and financial services (BIFS) segment in the US, which is faced with heavy stress. The number of banks that have failed in the US topped 100. The latest casualty is financial institution CIT group.

However, the IT companies’ move to cover payment risks comes at a time when the ECGC has already capped US exposures. Last month, the ECGC had capped its exposure to destinations such as the US at Rs 50 lakh ($110,000). The cap, though, would not apply to exporters who have diversified buyers, the ECGC had said.

Mr Suresh Senapaty, Chief Financial Officer, Wipro Ltd, said, “Recourse to CRI cover is also an alternative we are looking at on an ongoing basis as we do lot of exports. A lot of countries are being opened up and in that context, many companies are becoming bankrupt. If you have some of those covers by ECGC, then we stand protected.”

Infosys, however, has so far refrained from taking CRI cover. Infosys CFO, Mr V. Balakrishnan, said, “Our receivables are well under control. Though one of our big banking clients is already bankrupt, we have a good track record on risky receivables. Our receivables in BFSI are in fact much lower than the company average.” In Q2 this year, Infosys’ receivables stood at 56 days, same as that of the previous quarter.

ECGC officials confirmed that IT companies had approached them for CRI. The ECGC is a specialised credit risk insurance agency that guarantees export credits against importer payment risks. So far, few IT service providers in the country have taken CRI covers, from either the ECGC or the private sector insurers. The chase for such CRI cover now assumes significance as none of the IT companies’ sales to foreign customers is 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.

Besides, none of the banks is prepared to discount importer bills without LCs or bank guarantees. One of the major reasons for the service providers to begin looking for ECGC cover is partly due to the bankruptcy protection laws in the US.

Under US Chapter 11 bankruptcy code, there is an automatic stay on creditors. This implies delayed or payment delinquencies to suppliers, including BIFS service-providers. Last year, Sasken Technologies, telecom services provider to the now bankrupt Nortel Networks, had also approached the ECGC.

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