export credit

EXPORT CREDIT INSURANCE

CHAPTER 1

INTRDUCTION TO INSURANCE

1.1 MEANING OF INSURANCE

The business of insurance is related to the protection of the

economic values of the assets. Every asset has a value. The asset would

have been created through the efforts of the owner. The asset is valuable

to the owner, because he expects to get some benefits from it. The benefit

may be an income or some thing else. It is a benefit because it meets

some of his needs. In the case of a factory or a cow, the product generated

by is sold and income generated. In the case of a motor car, it provides

comfort and convenience in transportation. There is no direct income.

Every asset is expected to last for a certain period of time during

which it will perform. After that, the benefit may not be available. There

is a life-time for a machine in a factory or a cow or a motor car. None of

they will last forever. The owner is aware of this and he can so

manage his affairs that by the end of that period or life-time, a substitute

is made available. Thus, he makes sure that the value or income is not

lost. However, the asset may get lost earlier. An accident or some other

unfortunate event may destroy it or make it non-functional. In that case,

the owner and those deriving benefits there from, would not have been

ready. There is an adverse or pleasant situation. Insurance is a mechanism

that helps to reduce the effect of such adverse situations.

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1.2 HISTORY OF THE INSURANCE SECTOR

The business of life insurance in India in its existing form started in

India in the year 1818 with the establishment of the Oriental Life

Insurance Company in Calcutta. Some of the important milestones in the

life insurance business in India are:

1912: The Indian Life Assurance Companies Act enacted as the first

statute to regulate the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the

government to collect statistical information about both life and non-life

insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance

Act with the objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies taken over

by the central government and nationalized. LIC formed by an Act of

Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore

from the Government of India. The General insurance business in India,

on the other hand, can trace its roots to the Triton Insurance Company

Ltd., the first general insurance company established in the year 1850 in

Calcutta by the British.

Some of the important milestones in the general insurance business in

India are:

1907: The Indian Mercantile Insurance Ltd. set up, the first company to

transact

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All classes of general insurance business.

1957: General Insurance Council, a wing of the Insurance Association of

India, frames a code of conduct for ensuring fair conduct and sound

business practices.

1968: The Insurance Act amended to regulate investments and set

minimum solvency margins and the Tariff Advisory Committee set up.

1972: The General Insurance Business (Nationalization) Act, 1972

nationalized the general insurance business in India with effect from 1st

January 1973. 107 insurers amalgamated and grouped into four

companies’ viz. the National Insurance Company Ltd., the New India

Assurance Company Ltd., the Oriental Insurance Company Ltd. and the

United India Insurance Company Ltd. GIC incorporated as a company.

2000: with effect from Dec'2000, these subsidiaries have been de-linked

from the parent company and made as independent insurance companies).

All the above four subsidiaries of GIC operate all over the country

competing with one another and underwriting various classes of general

insurance business except for aviation insurance of national airlines and

crop insurance which is handled by the GIC.

Besides the domestic market, the industry is presently operating in

17 countries directly through branches or agencies and in 14 countries

through subsidiary and associate companies.

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CHAPTER 2

INSURANCE SECTOR REFORMS

The Malhotra Committee Report

In 1993, Malhotra Committee, headed by former Finance Secretary

and RBI Governor R. N. Malhotra, was formed to evaluate the Indian

insurance industry and recommend its future direction. In 1994, the

committee submitted the report and gave the following recommendations:

2.1 Structure

Government stake in the insurance Companies to be brought down to

50%.

Government should take over the holdings of GIC and its

subsidiaries so that these subsidiaries can act as independent

corporations.

All the insurance companies should be given greater freedom to

operate.

2.2 Competition

Private Companies with a minimum paid up capital of Rs.1bn should

be allowed to enter the industry.

No Company should deal in both Life and General Insurance

through a single entity.

Foreign companies may be allowed to enter the industry in

collaboration with the domestic companies.

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Postal Life Insurance should be allowed to operate in the rural

market. Only one State Level Life Insurance Company should be

allowed to operate in each state.

Regulatory Body.

The Insurance Act should be changed.

An Insurance Regulatory body should be set up.

Controller of Insurance (Currently a part from the Finance Ministry)

should be made independent.

2.3 Investments

Mandatory Investments of LIC Life Fund in government securities

to be reduced from 75% to 50%

GIC and its subsidiaries are not to hold more than 5% in any

company (There current holdings to be brought down to this level

over a period of time)

2.4 Customer Service

LIC should pay interest on delays in payments beyond 30 days

Insurance companies must be encouraged to set up unit linked

pension plans. Computerization of operations and updating of

technology to be carried out in the insurance industry

Overall, the committee strongly felt that in order to improve the

customer services and increase the coverage of the insurance

industry should be opened up to competition.

But at the same time, the committee felt the need to exercise caution

as any failure on the part of new players could ruin the public

confidence in the industry.

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Hence, it was decided to allow competition in a limited way by

stipulating the minimum capital requirement of Rs.1 billion. This

amount is not very high for foreign firms, as it translates to only about

US$25 million. Further, to date it is unclear whether equity should be

payable in one go or should be brought in as installments. Also, the

foreign equity participation was to be restricted to only 40%.

The committee felt the need to provide greater autonomy to

insurance companies in order to improve their performance and enable

them to act as independent companies with economic motives. For this

purpose, it had proposed setting up an independent regulatory body.

2.5 Scenario after Malhotra Committee Report

The Government of India liberalized the insurance sector in March

2000 with the passage of the Insurance Regulatory and Development

Authority (IRDA) Bill, lifting all entry restrictions for private players and

allowing foreign players to enter the market with some limits on direct

foreign ownership. Under the current guidelines, there is a 26 percent

equity cap for foreign partners in an insurance company. There is a

proposal to increase this limit to 49 percent.

The opening up of the sector is likely to lead to greater spread and

deepening of insurance in India and this may also include restructuring

and revitalizing of the public sector companies. In the private sector 15

life insurance companies have been registered. A host of private

Insurance companies operating in life segments have started selling their

insurance policies since 2001.

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CHAPTER 3

FUNCTIONS OF INSURANCE

3.1 Primary Functions

1. Provide protection: - Insurance cannot check the happening of the

risk, but can provide for the losses of risk.

2. Collective bearing of risk: - Insurance is a device to share the

financial losses of few among many others.

3. Assessment of risk: - Insurance determine the probable volume of

risk by evaluating various factors that give rise to risk

4. Provide certainty: - Insurance is a device, which helps to change

from uncertainty to certainty.

3.2 Secondary Functions

1. Prevention of losses: - Insurance cautions businessman and

individuals to adopt suitable device to prevent unfortunate

consequences of risk by observing safety instructions.

2. Small capital to cover large risks: - Insurance relives the

businessman from security investment, by paying small amount of

insurance against larger risks and uncertainty.

3. Contributes towards development of larger industries.

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Chapter4

CREDIT RISK

4.1 MEANING OF CREDIT RISK?

Credit risk is the risk of loss due to a debtor's non-payment of a loan or

other line of credit (either the principal or interest (coupon) or both)

4.2 Faced by lenders to consumers

Most lenders employ their own models (credit scorecards) to rank

potential and existing customers according to risk, and then apply

appropriate strategies. With products such as unsecured personal loans or

mortgages, lenders charge a higher price for higher risk customers and

vice versa. With revolving products such as credit cards and overdrafts,

risk is controlled through the setting of credit limits. Some products also

require security, most commonly in the form of property.

4.3 Faced by lenders to business

Lenders will trade off the cost/benefits of a loan according to its risks and

the interest charged. But interest rates are not the only method to

compensate for risk. Protective covenants are written into loan

agreements that allow the lender some controls. These covenants may:

Limit the borrower's ability to weaken their balance sheet

voluntarily e.g., by buying back shares, or paying dividends, or

borrowing further.

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Allow for monitoring the debt requiring audits, and monthly

reports

Allow the lender to decide when he can recall the loan based on

specific events or when financial ratios like debt/equity, or interest

coverage deteriorate.

A recent innovation to protect lenders and bond holders from the

danger of default are credit derivatives, most commonly in the form of a

credit default swap. These financial contracts allow companies to buy

protection against defaults from a third party, the protection seller. The

protection seller receives a periodic fee (the credit spread) as

compensation for the risk it takes, and in return it agrees to buy the debt

should a credit event ("default") occur.

Credit scoring models also form part of the framework for which a

banks or lending institutions grant credit to clients. For corporate and

commercial borrowers, these models generally have qualitative and

quantitative sections outlining various aspects of the risk including, but

not limited to, operating experience, management expertise, asset quality,

and leverage and liquidity ratios, respectively. Once this information has

been fully reviewed by credit officers and credit committees, the lender

provides the funds subject to the terms and conditions presented within

the contact (as outlined above).

4.4 Faced by business

Companies carry credit risk when, for example, they do not

demand up-front cash payment for products or services. By delivering the

product or service first and billing the customer later - if it's a business

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customer the terms may be quoted as net 30 - the company is carrying a

risk between the delivery and payment.

Significant resources and sophisticated programs are used to

analyze and manage risk. Some companies run a credit risk department

whose job is to assess the financial health of their customers, and extend

credit (or not) accordingly. They may use in house programs to advice on

avoiding, reducing and transferring risk. They also use third party

provided intelligence. Companies like Standard & Poor's, Moody's, Fitch

Ratings, and Dun and Bradstreet provide such information for a fee.

For example, a distributor selling its products to a troubled retailer

may attempt to lessen credit risk by tightening payment terms to "net 15",

or by actually selling fewer products on credit to the retailer, or even

cutting off credit entirely, and demanding payment in advance. Such

strategies impact sales volume but reduce exposure to credit risk and

subsequent payment defaults.

Credit risk is not really manageable for very small companies (i.e.,

those with only one or two customers). This makes these companies very

vulnerable to defaults, or even payment delays by their customers.

The use of a collection agency is not really a tool to manage credit

risk; rather, it is an extreme measure closer to a write down in that the

creditor expects a below-agreed return after the collection agency takes

its share (if it is able to get anything at all).

4.5 Faced by individuals

Consumers may face credit risk in a direct form as depositors at

banks or as investors/lenders. They may also face credit risk when

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entering into standard commercial transactions by providing a deposit to

their counterparty, e.g., for a large purchase or a real estate rental.

Employees of any firm also depend on the firm's ability to pay wages,

and are exposed to the credit risk of their employer. In some cases,

governments recognize that an individual's capacity to evaluate credit risk

may be limited, and the risk may reduce economic efficiency;

governments may enact various legal measures or mechanisms with the

intention of protecting consumers against some of these risks. Bank

deposits, notably, are insured in many countries (to some maximum

amount) for individuals, effectively limiting their credit risk to banks and

increasing their willingness to use the banking system.

4.6 Counterparty risk

Counterparty risk, otherwise known as default risk, is the risk that

an organization does not pay out on a credit derivative, credit default

swap, credit insurance contract, or other trade or transaction when it is

supposed to. Even organizations who think that they have hedged their

bets by buying credit insurance of some sort still face the risk that the

insurer will be unable to pay, either due to temporary liquidity issues or

longer term static issues.

Large insurers are counterparties to many transactions, and thus

this is the kind of risk that prompts financial regulators to act, e.g., the

bailout of insurer AIG. On the methodological side, counterparty risk can

be affected by wrong way risk, namely the risk that different risk factors

be correlated in the most harmful direction. Including correlation between

the portfolio risk factors and the counterparty default into the

methodology is not trivial; see for example Brigo and Pallavicini

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4.7 Sovereign risk

Sovereign risk is the risk of a government becoming unwilling or

unable to meet its loan obligations, or reneging on loans it guarantees.

The existence of sovereign risk means that creditors should take a two-

stage decision process when deciding to lend to a firm based in a foreign

country. Firstly one should consider the sovereign risk quality of the

country and then consider the firm's credit quality.

Five macroeconomic variables that affect the probability of sovereign

debt rescheduling are:

Debt service ratio

Import ratio

Investment ratio

Variance of export revenue

Domestic money supply growth

The probability of rescheduling is an increasing function of debt

service ratio, import ratio, variance of export revenue and domestic

money supply growth. Frenkel, Karmann and Scholtens also argue that

the likelihood of rescheduling is a decreasing function of investment ratio

due to future economic productivity gains. Saunders argues that

rescheduling can become more likely if the investment ratio rises as the

foreign country could become less dependent on its external creditors and

so be less concerned about receiving credit from these

countries/investors.

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Chapter 5

CREDIT MANAGEMENT TOOLS

5.1 MEANING

There is no clear definition of what credit management is. It is

usually regarded as assuring that buyers pay on time, credit costs are kept

low, and poor debts are managed in such a manner that payment is

received without damaging the relationship with that buyer. A credit

insurance company does all that. Either directly or in conjunction with a

company’s credit department. An approved credit management policy can

offer assurances to a financing bank, which may facilitate financing.

Suppliers that deliver goods and/or services on credit will have to

manage this credit risk to ensure that payment is received on time.

Several tools come to the aid of today's credit manager. These can be

used as additional security to existing credit management procedures. If

no procedures are in place, these tools can assist in setting these up.

5.2Buyer Information One of the most important credit management

tools is reliable up to date buyer information. A supplier only sees one

side of his buyer. Independent information is essential for efficient credit

management.

5.3 Country Reports A buyer may be sound, but the country he is in

may be experiencing severe problems. Country reports detect trends and

alert exporters before serious problems arise in a particular country.

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5.4 Credit Management Suppliers need to manage their outstanding

receivables. This can be done through complex financial solutions.

Alternatively companies can insure against bad debts, obtain detailed

market intelligence, implement ledger management, factor, or seek

professional help in recovering debts.

5.5 Debt Collection Pro-active debt collection procedure has a high

success rate. A buyer may be in difficulty, but the supplier can still

control payments, provided professional debt collection procedures are in

place.

5.6 Factoring

By transferring receivables, this financial technique makes it possible for

companies to fund all or some of their invoices and thus cover their

operating capital requirements; obtain cover against their customers'

insolvency; obtain payment of receivables with shorter payment terms;

obtain information on their customers' financial soundness; outsource or

vary their administrative expenses; and optimize current assets and

liabilities.

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Chapter 6


6.1 MEANING OF EXPORT CREDIT INSURANCE

Export credit is providing pre-shipment and post-shipment credit

either in Indian rupees or in foreign currency to an exporter. The credit is

given for short term i.e. up to 6 months, medium/ long term which

extends more than 6 months according to the eligibility of the products

and projects. Usually medium/ long term export credit is given after

inspecting the supplier's credits.

Export credit insurance protects the exporter from the consequences of

the payment risks due to the far-reaching political and economic changes.

Outbreak of war or civil war might block or delay the payment for goods

already exported. Coup or an insurrection in the importing country may

also bring the same result. In India export credit insurance in provided by

the Export Credit Guarantee Corporation (ECGC).

6.2 EXPORT CREDIT INSURANCE Functions

Formulate underwriting policy

Evaluate export projects

Assess credit risks

Structure securities to mitigate risks

Manage insurance portfolio

Endeavour to diversify portfolio

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6.3 EXPORT CREDIT INSURANCE : Strategic Goals

1) Focusing on Customers

Provide high quality service to allclients including

manufacturingexporters, export contractors, financialinstitutions,

investors, host country authorities and buyers of capital goods and

services.

2) Enhancing Performance

Build a high performance organization, operating on an effective and

self- sustaining basis through prudent underwriting and sound risk

analysispractices.

3) Engaging in Strategic Alliances

Forge partnerships and alliances with other insurers, government agencies

and international organizations to complement service and leverage

resources.

4) Fostering Risk Orientation

Create enterprise wide risk awareness and the application of effective risk

management techniques.

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CHAPTER 7

ECGC OF INDIA LIMITED

7.1 MEANING

The Export Credit Guarantee Corporation of India Limited

(ECGC in short) is a company wholly owned by the Government of

India. It provides export credit insurance support to Indian exporters and

is controlled by the Ministry of Commerce. Government of India had

initially set up Export Risks Insurance Corporation (ERIC) in July 1957.

It was transformed into Export Credit and Guarantee Corporation Limited

(ECGC) in 1964 and to Export Credit Guarantee of India in 1983.

This organization offers a range of services to exporters. They are as

mentioned below:

It provides credit risk insurance covers to the exporters against

there loss in export of goods and services.

It offers guarantees to the banks and financial institutions in order

to enable the exporters to obtain better facilities from them.

It provides Overseas Investment Insurance to the Indian companies

investing in joint ventures abroad as equity of loan

Export Credit Guarantee Corporation of India is 51 years old, it

was setup with the primary objective to provide export credit insurance

and trade related services to exporters.

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http://en.wikipedia.org/wiki/Government_of_India

http://en.wikipedia.org/wiki/Ministry_of_Commerce_and_Industry_(India)


ECGC is the fifth largest credit insurer of the world in terms of

coverage of national exports. The present paid-up capital of the company

is Rs.900 crores and authorized capital Rs.1000 crores.

The covers provided by ECGC are in to three areas:

Credit Insurance Policies

Guarantees to Banks

Special Schemes

7.2Credit Insurance Policies

7.2.1 SCR or Standard Policy

Shipments (Comprehensive Risks) Policy, commonly known as the

Standard Policy, is the one ideally suited to cover risks in respect of

goods exported on short-term credit, i.e. credit not exceeding 180 days.

This policy covers both commercial and political risks from the date of

shipment. It is issued to exporters whose anticipated export turnover for

the next 12 months is more than Rs.50 lacs. (The appropriate policy for

exporters with an anticipated turnover of Rs.50 lacs or less is the Small

Exporter's Policy, described separately).

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Risks covered under the Standard Policy?

Under the Standard Policy, ECGC covers, from the date of shipment, the

following risks:

a) Commercial Risks

Insolvency of the buyer.

Failure of the buyer to make the payment due within a

specified period, normally four months from the due date.

Buyer's failure to accept the goods, subject to certain

conditions.

b) Political Risks

Imposition of restriction by the Government of the buyer's

country or any Government action, which may block or delay

the transfer of payment made by the buyer.

War, civil war, revolution or civil disturbances in the buyer's

country. New import restrictions or cancellation of a valid

import license in the buyer's country.

Interruption or diversion of voyage outside India resulting in

payment of additional freight or insurance charges which can

not be recovered from the buyer.

Any other cause of loss occurring outside India not normally

insured by general insurers, and beyond the control of both

the exporter and the buyer.

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7.2.2 Small Exporters Policy

The Small Exporter's Policy is basically the Standard Policy,

incorporating certain improvements in terms of cover, in order to

encourage small exporters to obtain and operate the policy. It is issued to

exporters whose anticipated export turnover for the period of one year

does not exceed Rs.50 lacs.

7.2.3 Difference between Small Exporter's Policy and the

Standard Policy

Period of Policy: Small Exporter's Policy is issued for a period of 12

months, as against 24 months in the case of Standard Policy.

Minimum premium: Premium payable will be determined on the basis of

projected exports on an annual basis subject to a minimum premium of

Rs. 2000/- for the policy period.

No claim bonus in the premium rate is granted every year at the rate of

5% (as against once in two years for Standard Policy at the rate of 10%).

Declaration of shipments: Shipments need to be declared quarterly

(instead of monthly as in the case of Standard Policy).

Declaration of overdue payments: Small exporters are required to submit

monthly declarations of all payments remaining overdue by more than 60

days from the due date, as against 30 days in the case of exporters

holding the Standard Policy.

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Percentage of cover: For shipments covered under the Small Exporter's

Policy ECGC will pay claims to the extent of 95% where the loss is due

to commercial risks and 100% if the loss is caused by any of the political

risks (Under the Standard Policy, the extent of cover is 90% for both

commercial and political risks).

Waiting period for claims: The normal waiting period of 4 months under

the Standard Policy has been halved in the case of claims arising under

the Small Exporter's Policy.

Change in terms of payment of extension in credit period: In order to

enable small exporters to deal with their buyers in a flexible manner, the

following facilities are allowed:

A small exporter may, without prior approval of ECGC convert a

D/P bill into DA bill, provided that he has already obtained

suitable credit limit on the buyer on D/A terms.

Where the value of this bill is not more than Rs.3 lacs, conversion

of D/P bill into D/A bill is permitted even if credit limit on the

buyer has been obtained on D/P terms only, but only one claim

can be considered during the policy period on account of losses

arising from such conversions.

A small exporter may, without the prior approval of ECGC

extend the due date of payment of a D/A bill provided that a

credit limit on the buyer on D/A terms is in force at the time of

such extension.

Resale of unaccepted goods: If, upon non-acceptance of goods by a

buyer, the exporter sells the goods to an alternate buyer without obtaining

prior approval of ECGC even when the loss exceeds 25% of the gross

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invoice value, ECGC may consider payment of claims upto an amount

considered reasonable, provided that ECGC is satisfied that the exporter

did his best under the circumstances to minimize the loss.

In all other respects, the Small Exporter's Policy has the same features as

the Standard Policy.

7.3.1Specific Shipment Policy - Short Term(SSP-ST)

Specific Shipment Policies - Short Term (SSP-ST) provide cover to

Indian exporters against commercial and political risks involved in export

of goods on short-term credit not exceeding 180 days. Exporters can take

cover under these policies for either a shipment or a few shipments to a

buyer under a contract. These policies can be availed of by

(I) exporters who do not hold SCR Policy and

(II) exporters having SCR Policy,

in respect of shipments permitted to be excluded from the preview of the

SCR Policy.

7.3.2Different types of SSP (ST)

Specific Shipments (commercial and political risks) Policy -

short-term.

Specific Shipments (political risks) Policy - short-term.

Specific Shipments (insolvency & default of L/C opening

bank and political risks) Policy - short-term.

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7.4.1 Export (Specific Buyers) Policy

Buyer wise Policies - Short Term (BP-ST) provide cover to Indian

exporters against commercial and political risks involved in export of

goods on short-term credit to a particular buyer. All shipments to the

buyer in respect of whom the policy is issued will have to be covered

(with a provision to permit exclusion of shipments under LC). These

policies can be availed of by

(I) exporters who do not hold SCR Policy and

(II) by exporters having SCR Policy,

In case all the shipments to the buyer in question have been permitted to

be excluded from the purview of the SCR Policy.

7.4.2 Different types of BP (ST)?

Buyerwise (commercial and political risks) Policy - short-

term

Buyerwise (political risks) Policy - short-term.

Buyerwise (insolvency & default of L/C opening bank and

political risks) Policy - short-term

7.5.1 Export Turnover Policy

Turnover policy is a variation of the standard policy for the benefit of

large exporters who contribute not less than Rs. 10 lacs per annum

towards premium. Therefore all the exporters who will pay a premium of

Rs. 10 lacs in a year are entitled to avail of it.

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7.5.2 Difference between the turnover policy and a standard

policy

The turnover policy envisages projection of the export turnover of the

exporter for a year and the initial determination of the premium payable

on that basis, subject to adjustment at the end of the year based on actual.

The policy provides additional discount in premium with an added

incentive for increasing the exports beyond the projected turnover and

also offers simplified procedure for premium remittance and filing of

shipment information. It also provides for higher discretionary credit

limits on overseas buyers, based on the total premium paid by the

exporter under the policy. The turnover policy is issued with a validity

period of one year. In most of the other respects the provisions relating to

standard policy will apply to turnover policy.

7.6.1 Buyer Exposure Policies

Presently, in the policies offered to exporters premium is charged on the

export turnover, though the Corporation’s exposure on each buyer is

controlled through a system of approval of credit limits on the buyer for

covering commercial risks. While this suits the small and medium

exporters, many large exporters having large number of shipments have

been complaining about the volume of returns to be filed under the policy

necessitating the deployment of their resources for this purpose and also

resulting in possible unintentional omissions or commissions in such

reporting, which have an impact on the settlement of claims. There has

been a demand for simplification of the procedures as well as for

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rationalization of the premium structure. Considering the requirements of

such exporters, the Corporation has decided to introduce policies on

which premium would be charged on the basis of the expected level of

exposure. Two types of exposure policies – one for covering the risks on

a specified buyer and another for covering the risks on all buyers- are

offered.

7.6.2 Two types of Exposure policies are offered, viz,

Exposure (Single Buyer) Policy – for covering the risks on a

specified buyer and

Exposure (Multi Buyer) Policy – for covering the risks on all

buyers.

An exporter can choose to obtain exposure based cover on a selected

buyer. The cover would be against commercial and political risks

attached to the buyer for both non-LC and LC transactions. A separate

Buyer Exposure Policy will be issued for each buyer covering all the

exports to be made to the buyer during a period of twelve months. If the

exporter has opted for commercial and political risks cover, failure of the

LC opening bank in respect of exports against LC will also be covered,

for the banks with World Rank (WR) up to 25,000 as per latest Banker’s

almanac. For covering any bank with ranking beyond that level, the

exporter has to obtain specific approval from the branch, which issued the

policy prior to making the shipment. For covering the political risks only,

in respect of LC transactions or shipments to associates, Buyer Exposure

policy with endorsement restricting the cover to political risks only with

significantly less premium is offered. This policy can be availed by

exporters holding Standard Policy in respect of any of their buyers.

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Shipments to the buyers covered under Buyer Exposure Policies would be

excluded from the purview of the Standard Policy. Risks covered would

be same as covered under the existing Buyerwise Policy.

7.7.1 Consignment Exports Policy

(Stockholding Agent and Global Entity)

Economic liberalization and gradual removal of international barriers for

trade and commerce are opening up various new avenues of export

opportunities to Indian exporters of quality goods. One of the methods

being increasingly adopted by Indian exporters is consignment exports

where the goods are shipped and held in stock overseas ready for sale to

overseas ready for sale to overseas buyers, as and when orders are

received. To protect the Indian Exporters from possible losses when

selling goods to ultimate buyers, it was decided to introduce Consignment

Policy Cover.

There are two policies available for covering consignment export viz;

Consignment Exports (Stock-holding Agent)

Consignment Exports (Global Entity Policy)

A consignment Exports (Stock-holding Agent) Policy will be appropriate

for each exporter – stock holding agent combination provided the

following criteria are satisfied.

Merchandise is shipped to an overseas entity in pursuance of

an agency agreement;

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The overseas agent would be an independent and separate

legal entity with no associate/sister concern relationship with

the exporter;

The agent’s responsibilities could be any or all of the

following, viz., receiving the shipment, holding the goods in

stock, identifying ultimate buyers and selling the goods to

them in accordance with the directions, if any, of his

principal (exporter); and

The sales being made by the agent would be at the risk and

on behalf of the exporter (whether or not such sales are in the

agent’s own name or otherwise) in consideration of a

commission or some similar reward or compensation on sales

completed.

7.8.1 Service Policy

Where Indian companies conclude contracts with foreign principals for

providing them with technical or professional services, payments due

under the contracts are open to risks similar to those under supply

contracts. In order to give a measure of protection to such exporters of

services, ECGC has introduced the Services Policy.

7.8.2 Different types of Services Policy

Specific Services Contract (Comprehensive Risks) Policy;

Specific Services Contract (Political Risks) Policy;

Whole-turnover Services (Comprehensive Risks) Policy; and

Whole-turnover Services (Political Risks) Policy

27


Specific Services Policy, as its name indicates, is issued to cover a single

specified contract. It is issued to provide cover for contracts, which are

large in value and extend over a relatively long period. Whole-turnover

services policies are appropriate for exporters who provide services to a

set of principals on a repetitive basis and where the period of each

contract is relatively short. Such policies are issued to cover all services

contracts that may be concluded by the exporter over a period of 24

months ahead.

The Corporation would expect that the terms of payment for the services

are in line with customary practices in international trade in these lines.

Contracts should normally provide for an adequate advance payment and

the balance should be payable periodically based on the progress of work.

The payments should be backed by satisfactory security in the form of

Letters of Credit or bank guarantees.

Services policies are designed to cover contracts under which only

services are to be rendered. Contracts under which the value of services

to be rendered forms only a small part of a contract involving supply of

machinery or equipment will be covered under an appropriate specific

policy for supply contracts.

7.9.1 Software Project Policy

The Services Policies of the Corporation which have been in existence for

some time were offered to provide protection of exporters of services

including software and related services. However it was found that the

general services policy does not meet with the exact requirements of

28


software exporters. It was therefore decided to introduce a new credit

insurance cover to meet the needs of the software exporters, namely,

software projects policy, where the payments will be received in foreign

exchange. The general services policies will continue to be offered for the

export of services other than software and related services.

The following software services will be eligible for cover under the

Software Projects Policy:

Software project services, either on one time/turnkey basis or

progressive/milestone basis, involving

Development of software off-shore (i.e. at the exporters

location in India) to be delivered and implemented in the

buyer’s (client) location; or

Development of software on-site of the client and supply and

implementation; or

Both off-shore and on-site development

29


7.9.2 IT-enabled Services (Specific Customer) Policy

IT-enabled Services (Specific Customer) Policy is issued to cover the

following commercial and political risks involved in rendering IT-

enabled services to a particular customer:

Commercial risks :

Insolvency of the customer.

Failure of the customer to make the payment due within a specified

period, normally four months from the due date.

Buyer's failure to accept the services rendered (subject to certain

conditions).

Bank risks:

Bankruptcy of L/C opening bank.

Failure of L/C opening bank to make the payment due within a

specified period, normally within four months from the due date (Non-

payment due to discrepancies in the document will not be covered).

Political risks:

Imposition of restrictions by the Government of the customer’s

country or any Government action which may block or delay the

transfer of payment made by the customer;

War, civil war, revolution or civil disturbances in the customer’s

country;

New import restrictions or cancellation of a valid import license by

authorities in the customer’s country;

30


Cancellation by the Govt. of India a legally valid and binding

contract between the exporter and the customer.

ITES policy will provide cover in respect of contracts for rendering

service during a defined period with billing on the basis of service

rendered during a period say, a week, a month or a quarter, where the

payments due for the services rendered will be received in foreign

exchange.

7.10.1 Construction Works Policy

Construction Works Policy is designed to provide cover to an Indian

contractor who executes a civil construction job abroad.

The distinguishing features of a construction contract are that (a) the

contractor keeps raising bills periodically throughout the contract period

for the value of work done between one billing period and another; (b) to

be eligible for payment, the bills have to be certified by a consultant or

supervisor engaged by the employer for the purpose and (c) that, unlike

bills of exchange raised by suppliers of goods, The bills raised by the

contractor do not represent conclusive evidence of debt but are subject to

payment in terms of the contract which may provide, among other things,

for penalties or adjustments on various counts. The scope for disputes is

very large. Besides, the contract value itself may only be an estimate of

the work to be done, since the contract may provide for cost escalation,

variation contracts, additional contracts, etc. It is, therefore, important

that the contractor ensures that the contract is well drafted to provide

clarity of the obligations of the two parties and for resolution of disputes

31


that may arise in the course of execution of the contract. Contractors are

well advised to use the Standard Conditions of Contract (International)

prepared by the Federation International Des Ingenieurs Conseils (FIDIC)

jointly with the Federation International du Batiment et des Travaux

Publics (FIBTP).

7.10.2 Risks covered by Construction Works Policy

The Construction Works Policy of ECGC is designed to protect the

Contractor from 85% of the losses that may be sustained by him due to

the following risks:

Insolvency of the employer (when he is a non-Government entity);

Failure of the employer to pay the amounts that become payable to the

contractor in terms of the contract, including any amount payable under

an arbitration award;

Restrictions on transfer of payments from the employer's country to

India after the employer has made the payments in local currency;

Failure of the contractor to receive any sum due and payable under the

contract by reason of war, civil war, rebellion, etc;

The failure of the contractor to receive any sum that is payable to him

on termination or frustration of the contract if such failure is due to its

having become impossible to ascertain the amount or its due date

because of war, civil war, rebellion etc;

Imposition of restrictions on import of goods or materials (not being

the contractor's plant or equipment) or cancellation of authority to import

such goods or cancellation of export license in India, for reasons beyond

his control; and

32


Interruption or diversion of voyage outside India, resulting in his

incurring in respect of goods or materials exported from India, of

additional handling, transport or insurance charges, which cannot be

recovered from the employer.

7.11 Specific Policy for Supply Contract

The Standard Policy is a whole turnover policy designed to provide a

continuing insurance for the regular flow of an exporter's shipments for

which credit period does not exceed 180 days. Contracts for export of

capital goods or turnkey projects or construction works or rendering

services abroad are not of a repetitive nature and they involve

medium/long-term credits. Such transactions are, therefore, insured by

ECGC on a case-to-case basis under specific policies.

All contracts for export on deferred payment terms and contracts for

turnkey projects and construction works abroad require prior clearance of

Authorized Dealers, EXIM Bank or the Working Group in terms of

powers delegated to them as per exchange control regulations (Kindly

refer to 'Projects Exports Manual' of Reserve Bank of India. For further

details go to www.rbi.org.in). Applications for the purpose are to be

submitted to the Authorized Dealer (the financing bank), which will

forward applications beyond its delegated powers to the EXIM Bank.

Proposals for Specific Policy are to be made to ECGC after the contract

has been cleared by the Authorized Dealer, EXIM Bank or the Working

Group, as the case may be. Insurance Cover for Buyer's Credit And Line

of Credit Buyer's Credit is a credit extended by a bank in India to an

overseas buyer enabling the buyer to pay for machinery and equipment

33

http://www.rbi.org.in/


that he may be importing from India for a specific project.

A Line of Credit is a credit extended by a bank in India to an overseas

bank, institution or government for the purpose of facilitating import of a

variety of listed goods from India into the overseas country. A number of

importers in the overseas country may be importing the goods under one

Line of Credit.

ECGC has evolved schemes to protect the lending banks from certain

risks of non-payment. These covers take the form of an agreement

between the lending bank and ECGC and are issued on a case to case

basis. Credit terms and the length of the credit period should be in

conformity with what is appropriate for the export of the relevant items.

There should be adequate security for the repayments to be made by the

borrower.

Cover can be granted either for political risks or for comprehensive risks.

Political risks covered under the scheme are:

The occurrence of war between the country of the overseas party and

India.

The occurrence of war, hostilities, civil war, revolution, rebellion,

insurrection or other disturbances in the country of overseas party.

The operation of law or of an order, decree or regulation having the force

of law which in circumstances outside the control of the lender and/or the

overseas party, prevents, restricts or controls, the transfer of the sums due

to the lender by the overseas party under the Financial Agreement.

34


If ECGC agrees to provide comprehensive risks cover, the risk of

protracted default of the borrower to pay the amounts due under the loan

agreement and insolvency of the borrower, where applicable, will be

covered in addition to the political risks mentioned above. The premium

rates applicable to comprehensive risk cover will naturally be higher than

that for political risks cover. Normally ECGC covers up to 85% of the

loss.

The premium rates depend on the country to which exports are made and

the period of repayment.

At least 20% of the total amount of premium should be paid in advance.

The balance amount of premium may be paid on a quarterly basis in

proportion to the amount of credit disbursed.

35


CHAPTER 8

Guarantees to Banks

8.1 Export Credit Insurance Packing Credit

ELIGIBILITY: A bank or a financial institution authorized to deal in

foreign exchange can obtain the Individual Packing Credit Cover for each

of its exporter clients who has been classified as a standard asset and

whose CR is acceptable to ECGC.

PERIOD OF COVER: 12 months

ELIGIBLE ADVANCES: All packing credit advances as per RBI

guidelines.

PROTECTION OFFERED: Against losses that may be incurred in

extending packing credit advances due to protracted default or insolvency

of the exporter-client.

PERCENTAGE OF COVER: 66-2/3%

PREMIUM: 12 paise per Rs.100 p.m. on the highest amount outstanding

on any day during the month.

MAXIMUM LIABILITY: 66-2/3% of the Packing Credit Limit

sanctioned to the account being covered.

HIGHLIGHTS: Bank can take the cover selectively.

36


8.2 EXPORT CREDIT INSURANCE-EXPORT

PRODUCTION FINANCE (ECIB-EPF)

ELIGIBILITY: Any bank or financial institution authorized to deal in

foreign exchange can obtain the Export Production Finance Cover for

each of its exporter clients who has been classified as a standard asset and

whose CR is acceptable to ECGC.

PERIOD OF COVER: 12 months.

ELIGIBLE ADVANCES: Advances granted at pre-shipment stage over

and above FOB value.


extending packing credit advances to the full extent of cost of production

due to protracted default or insolvency of the exporter-client.

PERCENTAGE OF COVER: 66-2/3%.



MAXIMUM LIABILITY: 66-2/3% of the Packing Credit Limit

sanctioned to the account being covered.

HIGHLIGHTS: Bank can take the cover selectively. Banks having

ECIB-WTPC are eligible for concessionary premium rate and higher

percentage of cover as applicable.

37


8.3 EXPORT CREDIT INSURANCE-INDIVIDUAL POST -

SHIPMENT (ECIB -INPS)

ELIGIBILITY: Any bank or financial institution who is an authorized

dealer in foreign exchange can obtain the Individual Post-shipment

Export Credit Cover in respect of each of its exporter-clients who is

holding the Standard Policy of ECGC WITHOUT any exclusion.

PERIOD OF COVER: 12 months

ELIGIBLE ADVANCES: All post-shipment advances given through

purchase, negotiation or discount of export bills or advances against bills

sent on collection.


extending post-shipment advances due to protracted default or insolvency

of the exporter-client.

PERCENTAGE OF COVER: 75% for advances against bills drawn on

buyers other than associates and 60% for advances against bills drawn on

associates.

PREMIUM: 6 paise per Rs. 100 p.m. payable on the highest amount

outstanding on any day during the month.

MAXIMUM LIABILITY: 75% of the Post-shipment Limits of the

account.

HIGHLIGHTS: Bank can take the cover selectively.

38


8.4 EXPORT CREDIT INSURANCE-EXPORT FINANCE

(ECIB-EF)

ELIGIBILITY: Any bank authorized to deal in foreign exchange can

obtain the Export Finance Cover in respect of its exporter-client who has

been classified as a standard asset and whose CR is acceptable to ECGC.

PERIOD OF COVER: 12 months.

ELIGIBLE ADVANCES: Advances against incentives such as cash

assistance, duty drawback, etc., receivable at post-shipment stage.


extending post-shipment advances against incentives due to protracted

default or insolvency of the exporter-client.

PERCENTAGE OF COVER: 75%



MAXIMUM LIABILITY: 75% of the post-shipment limit sanctioned to

the account.

HIGHLIGHTS: Banks can take the cover selectively. Banks having

ECIB-WTPS are eligible for concessionary premium rate and higher

percentage of cover as applicable.

39


8.5 ECIB to Banks

Export Finance (Overseas Lending) Guarantee

If a bank financing an overseas project provides a foreign currency loan

to the contractor, it can protect itself from the risk of non-payment by the

contractor by obtaining Export Finance (Overseas Lending) Guarantee.

The premium rate is 0.90% per annum for 75% cover and 1.08% per

annum for 90% cover. Premium is payable in Indian Rupees. Claims

under the Guarantee will also be paid in Indian Rupees.

8.6. Special Schemes

Transfer Guarantee

When a bank in India adds its confirmation to a foreign Letter of Credit,

it binds itself to honor the drafts drawn by the beneficiary of the Letter of

Credit without any recourse to him provided such drafts are drawn strictly

in accordance with the terms of the Letter of Credit. The confirming bank

will suffer a loss if the foreign bank fails to reimburse it with the amount

paid to the exporter. This may happen due to the insolvency or default of

the opening bank or due to certain political risks such as war, transfer

delays or moratorium, which may delay or prevent the transfer of funds to

the bank in India. The Transfer Guarantee seeks to safeguard banks in

India against losses arising out of such risks. Transfer Guarantee is

issued, at the option of the bank to cover either political risks alone, or

both political and commercial risks. Loss due to political risks is covered

upto 90% and loss due to commercial risks upto 75%. The premium rates

depend on the country of export and the tenor of L/C

40


Overseas Investment Guarantee

ECGC has evolved a scheme to provide protection for Indian Investments

abroad. Any investment made by way of equity capital or untied loan for

the purpose of setting up or expansion of overseas projects will be

eligible for cover under investment insurance. The investment may be

either in cash or in the form of export of Indian capital goods and

services. The cover would be available for the original investment

together with annual dividends or interest receivable. The risks of war,

expropriation and restriction on remittances are covered under the

scheme. As the investor would be having a hand in the management of

the joint venture, no cover for commercial risks would be provided under

the scheme. For investment in any country to qualify for investment

insurance, there should preferably be a bilateral agreement protecting

investment of one country in the other. ECGC may consider providing

cover in the absence of any such agreement provided it is satisfied that

the general laws of the country afford adequate protection to the Indian

investments. The period of insurance cover will not normally exceed 15

years in case of projects involving long construction period. The cover

can be extended for a period of 15 years from the date of completion of

the project subject to a maximum of 20 years from the date of

commencement of investment. Amount insured shall be reduced

progressively in the last five years of the insurance period.

Exchange Fluctuation Risk Cover

The Exchange Fluctuation Risk Cover is intended to provide a measure of

protection to exporters of capital goods, civil engineering contractors and

41


consultants who have often to receive payments over a period of years for

their exports, construction works or services. Where such payments are to

be received in foreign currency, they are

open to exchange fluctuation risk as the forward exchange market does

not provide cover for such deferred payments. Exchange Fluctuation Risk

Cover is available for payments scheduled over a period of 12 months or

more, upto a maximum of 15 years. Cover can be obtained from the date

of bidding right up to the final instalment. At the stage of bidding, an

exporter/contractor can obtain Exchange Fluctuation Risk (Bid) Cover.

The basis for cover will be a reference rate agreed upon. The reference

rate can be the rate prevailing on the date of bid or rate approximating it.

The cover will be provided initially for a period of twelve months and can

be extended if necessary. If the bid is successful, the exporter/contractor

is required to obtain Exchange Fluctuation (Contract) cover for all

payments due under the contract. The reference rate for the contract cover

will be either the reference rate used for the Bid Cover or the rate

prevailing on the date of contract, at the option of the exporter/contractor.

If the bid is unsuccessful 75 percent of the premium paid by the

exporter/contractor is refunded to him

42


CHAPTER 9

UCO BANK PROFILE

9.1 HISTORY OF UCO BANK

Founded in 1943, UCO Bank is a commercial bank and a Government of India

Undertaking. Its Board of Directors consists of government representatives from the

Government of India and Reserve Bank of India as well as eminent professionals like

accountants, management experts, economists, businessmen, etc.

Shri Arun Kaul

Chairman & Managing

Director

Shri Ajai Kumar

Executive Director

Shri N. R.

Badrinarayanan

Executive Director

MR. ASHOK LANDAGE

SENIOR MANAGER IN

UCO BANK (MUMBAI

BRANCH)

43


Our Vision Statement

To emerge as the most trusted, admired and sought-after world class

financial institution and to be the most preferred destination for every

customer and investor and a place of pride for its employees.

Our Mission Statement

To be a Top-class Bank to achieve sustained growth of business and

profitability, fulfilling socio-economic obligations, excellence in

customer service; through up gradation of skills of staff and their

effective participation making use of state-of-the-art technology.

Global banking has changed rapidly and UCO Bank has worked hard to

adapt to these changes. The bank looks forward to the future with

excitement and a commitment to bring greater benefits to you.

UCO Bank, with years of dedicated service to the Nation through active

financial participation in all segments of the economy - Agriculture,

Industry, Trade & Commerce, Service Sector, Infrastructure Sector etc.,

is keeping pace with the changing environment. With a countrywide

network of more than 2000 service units which includes specialised and

computerized branches in India and overseas, UCO Bank has marched

into the 21st Century matched with dynamism and growth!

Overview

We are in the Service of Community since 1943.

We have nearly 2000 Service Units spread all over India.

We also operate in two Major International Financial Centres

namely Hongkong and Singapore.

44


We have our Correspondents/Agency arrangements all over the

world.

We undertake Foreign Exchange Business in more than 50 Centres

in India.

We have Foreign Exchange Dealing Operations at 4 Centres.

Our Strengths

Country-wide presence

Overseas Presence with Profitable Overseas Operations

Strong Capital Base

High Proportion of Long Term Liabilities

A Well Diversified Asset Portfolio

A Large and Diversified Client Base

Fully Computerized Branches at Major Centers

Branch representation in Top 100 Centers (as per deposits) in the

country

Organisation Structure

Headquartered in Kolkata, the Bank has 35 Regional Offices spread all

over India. Branches located in a geographical area report to the Regional

Office having jurisdiction over that area. These Regional Offices are

headed by Senior Executives ranging upto the rank of General Manager,

depending on size of business and importance of location. The Regional

Offices report to General Managers functioning at Head Office in

Kolkata.

Our Commitment to Customers

45


In all our promotional activities, we will be fair and reasonable in

highlighting the salient features of the schemes marketed by us.

Misleading or unfair highlighting of any aspect of any scheme/service

marketed by the Bank leading to unfair practice shall not be resorted to

by the Bank.

In commemorating the 50th Year of Independence of India, the Bank

released a booklet entitled “Our Commitment to Customers

“incorporating the Citizen's Charter on services provided by the Bank.

In our continuing endeavour to serve our customers better, we have

considerably extended the business hours for public transaction at the

branches on all week-days. We have also introduced a number of NO

HOLIDAY branches. These branches are open all 365 days a year.

9.2 INTERNATIONAL BANKING

UCOBANK has international presence for over 50 years now. UCO

presently has four overseas branches in two important international

financial centres in Singapore and Hong Kong and representative office at

Kuala Lumpur, Malaysia and Guangzhou, China.

The international linkage from India is supported by a large Indian

network through Integrated Treasury Branch and Authorised Forex

Branches. Our other branches in India also provide international banking

facilities through the Authorized Branches of our bank. This international

network is further augmented by correspondent arrangements with

leading Banks at all important world centres in various countries. Thus

UCO has a true global presence and can offer a variety of international

46


banking products, services and financial solutions to all cross-section of

clients, tailor-made to their banking requirements through one of the best

international banking relationship networks both in terms of strength and

spread.

9.3 PRODUCTS & SERVICES

The international banking services in India is provided for the benefit of

Indian customers, corporates, NRIs, Overseas Corporate Bodies, Foreign

Companies/ Individuals as well as Foreign Banks etc. by our International

Banking Branches, Authorised Forex Branches and Integrated Treasury

Branch. Our other branches in India also provide international banking

facilities through the aforesaid network of our branches.

All the facilities are subject to the prevalent rules & guidelines of the

Bank and RBI. Brief details of services provided are as under:

1. NRI Banking (Please visit NRI Corner)

2. Foreign Currency Loans

3. Finance/Services to Exporters

4. Finance/Services to Importers

5. Remittances

6. Forex & Treasury Services

7. Resident Foreign Currency (Domestic) Deposits

8. Correspondent Banking Services

9. All General Banking Services (Please visit Domestic Banking

Sections)

47


9.4 Types of Facilities for Exports

A) Rupee Export Credit (pre-shipment and post-shipment):

UCO provides both pre and post shipment credit to the Indian exporters

through Rupee Denominated Loans as well as foreign currency loans in

India. Credit facilities are sanctioned to exporters who satisfy credit

exposure norms of UCO. Exporters having firm export orders or

confirmed L/C from a bank are eligible to avail the export credit

facilities.

Rupee Export Credit is available generally for a period of 180 days from

the date of first disbursement. In deserving cases extension may be

permitted within the guidelines of RBI. The corporates may also book

forward contracts with UCO in respect of future export credit drawls, if

required, as per the guidelines/directives provided by RBI.

B) Pre-shipment Credit in Foreign Currency (PCFC):

UCO offers PCFC in the foreign currency to the exporters enabling them

to fund their procurement, manufacturing/processing and packing

requirements. These loans are available at very competitive international

interest rates covering the cost of both domestic as well as import content

of the exports.

The corporates/exporters with a good track record can avail a running

account facility with UCO for PCFC. PCFC is generally available for a

period of 180 days from date of first disbursement. In deserving cases

extension may be permitted within the guidelines of RBI.

Features:

48


(The forward covers can be booked in respect of future PCFC drawls.)

In the PCFC drawls permitted in a foreign currency other than the

currency of export, exporter bears the risk in currency fluctuations. The

foreign currency drawls are restricted to major currencies at present. In

case, the export order is in a non-designated currency, PCFC is given in

US$. For orders in Euro, Pound Sterling and JPY, PCFC can be availed

in the respective currencies or US$ at the choice of exporter.

Multi-currency drawls against the same order, are not permitted at present

due to operational inconvenience.

Repayment:

PCFC is to be repaid with the proceeds of the export bill submitted after

shipment.In case of cancellation of export order, the PCFC can be closed

by selling equivalent amount of foreign exchange at TT selling rate

prevalent on the date of liquidation.

The PCFC in foreign currency are granted at our various branches

through our Integrated Treasury Branch in Mumbai.

C) Negotiation of Bills under L/C

UCO's Authorised Forex Branches are active in negotiation/discounting

of sight/usance international export bills under L/Cs opened by foreign

banks as well as branches of Indian banks abroad. UCO offers the most

competitive rates. These transactions are undertaken by our branches

within the Bank/Country Exposure ceilings prescribed by UCO.

49


D) Export Bill Rediscounting:

UCO provides financing of export by way of discounting of export bills,

as post shipment finance to the exporters at competitive international rate

of interest. This facility is available in four currencies i.e. US$, Pound

Sterling, Euro and JPY.

The export bills (both Sight and Usance) drawn in compliance of FEMA

can be purchased/ discounted.

Exporters can avail this facility from UCO to cover the bills drawn under

L/C as well as other export bills.

E) Bank Guarantees:

UCO, on behalf of exporter constituents, issues guarantees in favour of

beneficiaries abroad. The guarantees may be Performance and Financial.

For Indian exporters, guarantees are issued in compliance to RBI

guidelines.

9.5 FINANCE/SERVICES TO IMPORTERS

1. Collection of Import Bills:

UCO has correspondent relationship with reputed International Banks

throughout the world and can thus provide valuable services to importers

who may be importing from any part of the Globe. The import bills are

collected by our Authorised Forex Branches at very competitive rates.

50


The import bills drawn on customers of other branches are also collected

through these branches.

2. Letter of Credit:

On account of UCO's presence in international market for decades, UCO

has established itself as a well known international bank. L/Cs of UCO is

well accepted in the International market. For any special requirement

UCO can get the L/C confirmed by the top international banks.

Thus UCO's L/C facility for the purchase of goods/services etc. fulfills

the requirements of all importers to arrange a reliable supply. UCO offers

this facility to importers in India within the ambit of FEMA and Exim

policy of Govt. of India. UCO uses state of the art SWIFT network to

transmit L/Cs and with a worldwide network of correspondents and our

overseas branches facilitates prompt & efficient services to the importers.

L/C facility is granted to the importers on satisfying credit exposure

norms of the Bank.

3. Bank Guarantees:

UCO, on behalf of importer constituents or other customers, issues

guarantees in favour of beneficiaries abroad. The guarantees may be both

Performance and Financial.

4. REMITTANCES

51


UCO, through its worldwide network of correspondents, Indian branches

and overseas branches, offers prompt inward and outward foreign

remittance facilities at very competitive rates. The use of SWIFT network

adds to reliability and efficient handling.

The remittances are handled by our Authorised Forex Branches. The

outward remittances of customers of other branches are also remitted

through these branches. Through our well-spread network of branches in

India, inward remittances reach every nook & corner in India. UCO has

tie-up arrangements with Western Union Money Transfer.

5. FOREX & TREASURY SERVICES

UCO operates in the Forex Market in India as well as abroad. In India the

inter-bank forex operations is centralized at our Integrated Treasury

Branch in Mumbai, country's undisputed financial hub. UCO's

Authorised Forex Branches undertake customer transactions. The forex

requirements of customers of other branches are also routed through these

branches. Overseas branches undertake the forex treasury operations in

Singapore and Hong Kong centre.

6. RESIDENT FOREIGN CURRENCY (DOMESTIC) A/Cs

UCO also offers Resident individuals in India, the facility to open non-

interest bearing current account in foreign currency at the selected Indian

branches as permitted by RBI. Joint accounts with a resident eligible to

open RFC (D) account is permissible. Nomination facility is also

permitted.

52


Thus UCO will provide an option to resident individuals to retain their

receipts from abroad in foreign currency as permitted by RBI.

7. CORRESPONDENT BANKING SERVICES

The extensive network of branches in India and presence in two

important international centres enables UCO to offer correspondent

banking services to the banks.

The Authorised Forex Branches in India as well as our overseas branches

are capable of providing the services that an international correspondent

Bank can offer.

UCO can provide the following main services:-

1. Collection of bills both Documentary and Clean.

2. Advising/confirming of L/Cs opened by banks

3. Discounting of Bills drawn under L/Cs

4. Maintanence of foreign currency accounts in S$ and HK$

5. Maintanence of Rupee accounts in India

6. Making foreign currency payments/remittance on behalf of

customers of banks.

UCO's excellent service with competitive charges provide a good

Correspondent Banking solution.

UCO's overseas branches are active in discounting of usance international

trade bills. With foreign currency resources of overseas branches, UCO

offers the most competitive rates for discounting of these bills. The bills

under the L/Cs of the most of the Indian Banks as well as International

Banks are also discounted at competitive rates. These transactions are

53


undertaken by them within the Bank/Country Exposure ceilings

prescribed by UCO.

EXTERNAL COMMERCIAL BORROWING (ECB)

The foreign currency loans to the Indian corporate are granted by UCO's

overseas branches. The borrowings raised by the Indian corporate from

specified banking sources outside India are termed "External Commercial

Borrowings" (ECBs). These ECBs can be raised within the Policy

guidelines of Govt. of India/Reserve Bank of India, as applicable from

time to time. ECB includes the following:-

1. Commercial LoansSyndicated Loans

2. Floating/Fixed rate notes and bonds

3. Lines of Credit from foreign banks and financial institutions

4. Import loans, loans from the export credit agencies of other

countries.

UCO is very active in granting and arranging various forms of ECB

facilities for the Indian Corporate. UCO can offer following services to

the Indian corporates in respect of cross border financing :-

1. Arranging/granting External Commercial Borrowings by way of

Foreign Currency Loans, FRNs, Bonds for the Indian corporates.

2. Arranging/underwriting International Syndicated Loans for the

Indian corporates.

3. Participating in the International Loan Syndications.

4. Granting loans backed by Export Credit Agencies.

5. Providing import finance for Indian Corporates.

54


6. Issue of Guarantees such as Bids, Bonds, Performance, Advance

Payment etc. for the overseas projects bagged by the Indian Corporates.

9.6 Risk are covered by UCO BANK in export credit

insurance

1) Credit Insurance Covers to exporters against Credit Risk losses in

export of goods & services both under Short term and Medium andLT

2) Credit Insurance covers to banks to protect them against risks of non

payment by exporters both under Short term and Medium andLT

3) Domestic Credit Insurance covers to Exporters and Banks in respect of

their local sales and working capital finance, respectively

4) Overseas Investment Insurance covers to protect Indian Entrepreneurs

investing in Overseas Ventures (Equity/Loans) against expropriation risks

5) Exchange Fluctuation Covers to exporters to protect them in respect of

their exchange losses under Medium and LT exports

6) Provides credit risk covers to Exporters against non payment risks of

the overseas buyers / buyer’s

country in respect of the exports made.

7) Provides credit Insurance covers to banks against lending risks of

exporters

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8) Assessment of buyers for the purpose of underwriting Preparation of

country reports

Risk covered

1) COMMERCIAL RISKS

Insolvency of buyer/LC opening bank

Protracted Default of buyer

Repudiation by buyer

2) POLITICAL RISKS

War/civil war/revolutions

Import restrictions

Exchange transfer delay/embargo

Any other cause attributable to importing

country

9.7 Products offered to Exporters by UCO BANK

1) Transaction based Policies

Specific Shipments Policies

2) Buyer Specific Policies

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Specific Buyer (Turnover) Policies

Specific Buyer (Exposure) Policies

3) Whole Turnover Policies

Shipments Policies ( SCR /SEC Policies)

Exports ( Turnover) Policies

MSME Policies

Multi Buyer (Exposure) Policies

Consignment (Agent / Global Entity) Policies

5) Tailor made Policies ( Customised )

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9.8 Documents Required FOR EXPORT CREDIT

INSURANCE

Certain documentation takes place while exporting from India. Special

documents may be required depending on the type of product or

destination. Certain export products may require a quality control

inspection certificate from the Export Inspection Agency. Some food and

pharmaceutical product may require a health or sanitary certificate for

export.

Shipping Bill/ Bill of Export is the main document required by the

Customs Authority for allowing shipment. Usually the Shipping Bill is of

four types and the major distinction lies with regard to the goods being

subject to certain conditions which are mentioned below:

Export duty/ cess

Free of duty/ cess

Entitlement of duty drawback

Entitlement of credit of duty under DEPB Scheme Re-export of

imported goods

The following are the documents required for the processing of the

Shipping Bill:

GR forms (in duplicate) for shipment to all the countries.

4 copies of the packing list mentioning the contents quantity, gross

and net weight of each package.

4 copies of invoices which contains all relevant particulars like

number of packages, quantity, unit rate, total f.o.b./ c.i.f. value,

correct & full description of goods etc.

Contract, L/C, Purchase Order of the overseas buyer.

AR4 (both original and duplicate) and invoice.

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Inspection/ Examination Certificate.

The formats presented for the Shipping Bill are as given below:

White Shipping Bill in triplicate for export of duty free of goods.

Green Shipping Bill in quadruplicate for the export of goods which

are under claim for duty drawback.

Yellow Shipping Bill in triplicate for the export of dutiable goods.

Blue Shipping Bill in 7 copies for exports under the DEPB scheme.

The following are the documents required for the processing of the

Shipping Bill:

GR forms (in duplicate) for shipment to all the countries.

4 copies of the packing list mentioning the contents, Measurement

of any other side of circumference 0.9 m./ 2.00 m.

Maximum weight: 10 kg usually, 20 kg for some destinations.

Commercial invoice - Issued by the seller full realisable amount

of goods as per trade term.

Consular Invoice - Mainly needed for the countries like Kenya,

Uganda, Tanzania, Mauritius, New Zealand, Burma, Iraq,

Ausatralia, Fiji, Cyprus, Nigeria, Ghana, Zanzibar etc. It is

prepared in the prescribed format and is signed/ certified by the

counsel of the importing country located in the country of export.

Customs Invoice - Mainly needed for the countries like USA,

Canada, etc. It is prepared on a special form being presented by the

Customs authorities of the importing country. It facilitates entry of

goods in the importing country at preferential tariff rate.

Legalised/ Visaed Invoice - This shows the seller's genuineness

before the appropriate consulate/ chamber of commerce/ embassy.

It do not have any prescribed form.

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Certified Invoice - It is required when the exporter needs to certify

on the invoice that the goods are of a particular origin or

manufactured/ packed at a particular place and in accordance with

specific contract. Sight Draft and Usance Draft are available for

this. Sight Draft is required when the exporter expects immediate

payment and Usance Draft is required for credit delivery.

Packing List - It shows the details of goods contained in each

parcel/ shipment.

Certificate of Inspection - It shows that goods have been

inspected before shipment.

Black List Certificate - It is required for countries which have

strained political relation. It certifies that the ship or the aircraft

carrying the goods has not touched those country(s).

Weight Note - Required to confirm the packets or bales or other

form are of a stipulated weight.

Manufacturer's/ Supplier's Quality/ Inspection Certificate.

Manufacturer's Certificate - It is required in addition to the

Certificate of Origin for few countries to show that the goods

shipped have actually been manufactured and are available.

Certificate of Chemical Analysis - It is required to ensure the

quality and grade of certain items such as metallic ores, pigments,

etc.

Health/ Veterinary/ Sanitary Certification - Required for export

of foodstuffs, marine products, hides, livestock etc.

Certificate of Conditioning - It is issued by the competent office

to certify compliance of humidity factor, dry weight, etc.

Antiquity Measurement - Issued by Archaeological Survey of

India in case of antiques.

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Transhipment Bill - It is used for goods imported into a customs

port/ airport intended for transhipment.

Shipping Order - Issued by the Shipping (Conference) Line which

intimates the exporter about the reservation of space of shipment of

cargo through the specific vessel from a specified port and on a

specified date.

Cart/ Lorry Ticket - It is prepared for admittance of the cargo

through the port gate and includes the shipper's name, cart/ lorry

No., marks on packages, quantity, etc.

Shut Out Advice - It is a statement of packages which are shut out

by a ship and is prepared by the concerned shed and is sent to the

exporter.

Short Shipment Form - It is an application to the customs

authorities at port which advises short shipment of goods and

required for claiming the return.

CHAPTER 10

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CONCLUSION

Competition will surely cause the market to grow beyond current rates

and offer additional consumer choices through the introduction of new

products, services, and price options.

At the same time, public and private sector companies will be working

together to ensure healthy growth and development of the sector.

Challenges such as developing a common industry code of conduct,

contributing to a common catastrophe reserve fund, and chalking out

agreements between insurers to settle claims to the benefit of the

consumer will require concerted effort from both sectors.

The market is now in an evolving phase where one can expect a lot of

actions in coming days. The current impediments for foreign participation

– like 26% equity cap on foreign partner, will defined regulatory role of

IRDA (Insurance Regulatory development Authority- the watchdog of the

industry) are expected to be removed in near future. The early-adopters

will then have a clear advantage compared to laggards in gaining the

market share and market leadership. The will need to make sure right

now that their entire infrastructure is in place so that they can reap the

benefit of an "unlimited potential."

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ANEXURE

1) BIBLOGRAPHY

A) BOOKS REFERRED:-

1) INSURANCE MANAGEMENT (PRINCIPLE & PRACTICE) KARAM

PAL., B. S. BODLA & M. C. GARG.

2) INSURANCE AND RISK MANAGEMENT

Dr. P.K. GUPTA

3) INSURANCE

JULIA HOLUOAKE & WILLION WEIPARS

4) INSURANCE-PRINCIPLES AND PRACTICE,

M.N.MISHRA

5) RISK MANAGEMENT – INSURANCE AND DERIVATIVES

Dr. G. KOTRESHWAR

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2) WEBLIOGRAPHY

www.asiainsurancereview.com

www.timesofindia.indiatimes.com

www.thehindubusinessline.com

www.economist.com

www.economictimes.indiatimes.com

www.insuranceinstituteofindia.com

www.irdaindia.org

www.ucobank.com

www.Ecgci.co.in

64

http://www.Ecgci.co.in/

http://www.ucobank.com/

http://www.irdaindia.org/

http://www.insuranceinstituteofindia.com/

http://www.economictimes.indiatimes.com/

http://www.economist.com/

http://www.thehindubusinessline.com/

http://www.timesofindia.indiatimes.com/

http://www.asiainsurancereview.com/