ECGC board meeting on Oct 3 to consider waiver of loss cover rider
The Export Credit Guarantee Corporation board is meeting in Mumbai on October 3 to resolve the controversy around a rider placed by the national credit insurer on risk cover for shipments to Iran.
The rider was obstructing smooth flow of foreign currency-based bank credit for exports to Iran, exporters and bankers had said.
To secure its interests, the ECGC had stipulated that it would not cover any loss incurred by an exporter in situations where there was insufficient rupee balance in the Vostro account (in UCO Bank), or if, for some reason, the exporter does not receive payment.
A Vostro account is the local currency account maintained by a local bank for a foreign (correspondent) bank. For the foreign bank, it becomes a Nostro account.
“The ECGC Board will take a call on the rider issue on October 3. All the representations are already before the Board”, sources said.
In the wake of the ECGC condition, banks were hesitant to handle letter-of-credit (LC) documents opened by Iran for export shipments from India.
The Federation of Indian Export Organisations’ President Rafeeque Ahmed will represent the exporters’ interests at the Board meeting, while the bankers’ point of view is expected to be articulated by K. R. Kamath, the Chairman and Managing Director of Punjab National Bank. Both Kamath and Ahmed are board members of the ECGC. Kamath has recently been appointed as Chairman of the Indian Banks’ Association (IBA), which has raised expectations among bankers’ that their interests will be well secured at the meeting.
Difficult to check
Under the new payment mechanism put in place recently post-US sanctions, merchandise exports from India are allowed only against LCs opened by Iranian importers.
Banks contend that it is very difficult for them to check if rupee balance exists in the Vostro account at the time of presentation of documents.
FIEO had also said that exporters were facing problems getting export credit on Iran shipments on account of this condition.
Despite having a huge order book from Iran, exporters have been unable to execute them as they were not getting adequate export credit from banks, Rafeeque Ahmed had said in a letter to the ECGC Chairman and Managing Director N. Shankar.
FIEO had said that the condition (put by ECGC) should be waived in the larger interest of the exporting community.