What is NIRVIK scheme? How will it help exporters?
NIRVIK scheme: The ECGC has introduced ‘NIRVIK’ scheme to enhance loan availability for exporters and ease the lending process.
NIRVIK scheme: Export Credit Guarantee Corporation of India (ECGC) has introduced ‘NIRVIK’ scheme to ease the lending process and enhance loan availability for exporters. The details of the scheme were shared by Union Minister of Commerce and Industry and Railways, Piyush Goyal on September 16, 2019 during a press conference. The scheme was announced by the Finance Minister Nirmala Sitharaman on September 14 as a part of measures to boost exports.
Under the new ‘NIRVIK’ scheme, which is also called the Export Credit Insurance Scheme (ECIS), the insurance cover guaranteed will cover up to 90 percent of the principal and interest. The insurance cover will include both pre and post-shipment credit. The Export Credit Guarantee Corporation of India (ECGC) currently provides credit guarantee of up to 60 percent loss.
Enhanced Insurance Cover: Benefits
The main aim behind introducing the scheme was to enhance accessibility and affordability of credit for exporters. The decision will help make Indian exports competitive and make ECGC procedures exporter friendly, benefiting MSME exporters with a new scheme for reimbursing taxes, reduced insurance cost and ease of doing business.
The insurance cover is expected to bring down the cost of credit due to capital relief, less provision requirement and liquidity due to quick settlement of claims and will ensure timely and adequate working capital to the export sector.
Under the ‘NIRVIK’ scheme, the gems, jewellery and diamond(GJD) sector borrowers with limit of over Rs 80 crore will have a higher premium rate in comparison to the non-GJD sector borrowers of this category due to the higher loss ratio.
The ECGC insurance cover will provide additional comfort to banks as the credit rating of the borrower will be enhanced to AA rated account. The increased cover will ensure that foreign and rupee export credit interest rates are below 4 percent and 8 percent respectively for the exporters.
NIRVIK scheme: Key Details
The Finance Ministry has decided to increase the insurance cover for banks up to 90 percent for working capital loans and moderation in premium incidence for the MSME sector to provide additional support to the banks in the wake of a global slowdown and rising NPAs.
The enhanced insurance cover will ensure that foreign and rupee export credit interest rates will be below 4 and 8 percent respectively for the exporters.
It will catalyze the banks to enhance the volume of export credit lending, especially to the MSME Sector with optimal pricing due to capital and risk optimization.
The existing insurance covers issued by the 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 on the date of transition shall be eligible for the insurance cover under the ECIS.
The insurance cover will include not only the principal outstanding but also the unpaid interest for a maximum of two quarters or the NPA date, whichever is earlier.
The coverage has been increased to 90 percent from the present average of 60 percent for both principal and interest.
It will also cover both pre-shipment and post-shipment advances unlike the present system, where two different documents are issued by the ECGC.
The scheme also aims to simplify the procedure for settlement of claims and provisional payment of up to 50 percent within 30 days on production of proof of end-use of the advances in default by the Insured Bank.
The scheme will be in force for a period of 5-years and on the conclusion, the standard ECGC covers will be made available to the 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 Rs80 crore, the rates will be 0.72 per annum for the same enhanced cover.
Further, the scheme will mandate inspection of bank documents and records by ECGC officials for losses exceeding Rs.10 crore as against the present Rs 1crore.
The banks shall pay a premium to ECGC monthly on the principal and interest as the cover is offered for both outstandings.
Other aspects such as seeking approval of limits, monthly declarations with premium, report of default, Lodgment of Claim, extension in due date under Pre-Shipment/Post-Shipment, placing of borrower in Specific Approval List (SAL), Checking of Buyers Specific Approval List (BSAL) and Checking of Restricted Cover Category (RCC) and sharing of recovery will continue as per the existing terms and conditions of cover of ECGC.
The banks will also continue to follow the internal guidelines of the RBI relating to export finance backed by enhanced due diligence on the borrower.
The Export Credit Guarantee Corporation of India (ECGC) is a fully government-owned company that was established in 1957 to promote exports by providing credit insurance services.
The ECGC provides Export Credit Insurance to Banks (ECIB) to protect the banks from losses on account of export credit at the Pre and Post-Shipment stage given to exporters due to the risks of insolvency or protracted default of the exporter borrower.