Export Credit Guarantee Corporation of India Ltd (ECGC), which comes under the administrative control of the Commerce Ministry, provides export credit insurance cover to exporters and banks.
In a report tabled in Parliament today, the Comptroller and Auditor General of India (CAG) said that "out of 29 banks to whom whole turnover post shipment (WTPS) cover was issued, the Claim Premium Ratio of 13 banks was more than 200 per cent and resulted in a loss of Rs 309.27 crore during 2008-09 and 2010-11."
The agreement amongst banks to finance exporters posed an enhanced credit risk and ECGC had no mechanism to know of this arrangement except only at the time of their filing the Report of Default," CAG said in the report.
ECGC offered whole turnover insurance covers to banks to protect them against default by exporters who had availed packing credit or post shipment credit.
The report also said it reviewed 102 insurance covers issued to 34 banks under whole turnover packing credit (pre-shipment stage) and 86 covers issued to 29 banks under whole turnover post shipment.
The review showed that there was a profit of Rs 665.78 crore in pre-shipment insurance covers and a loss of Rs 191.72 crore under post-shipment cover during the period.
It also said that while underwriting individual risks of exporters, ECGC only relied on information furnished by the banks without any access to the banks' appraisal system.
CAG recommended that ECGC needs to introduce an effective system of incentivising the banks with lesser claim ratio and disincentivise banks with higher claim ratio in WTPS.
It said that in order to reduce the risk of claims, the company needs to make it mandatory for banks to carry out credit worthiness verification of foreign importers before sanctioning advances.
"The company (ECGC) should insist on obtaining from the banks, a certificate that due diligence has been carried out on the credit worthiness of the buyers," it added.