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Capital Adequacy and Provisioning Requirements for Export Credit Covered
by Insurance/ Guarantee
DBOD
No. BP. BC. 23 - 21.01.002 dated 29th August 2002
Please
refer to item I.A.III.7 of Annexure 2 to our Master circular DBOD No. BP.BC.2/
21.01.002/2002-2003 dated July 5, 2002 on Prudential Norms on Capital Adequacy,
in terms of which advances covered by DICGC/ ECGC guarantees should be assigned
a risk weight of 50 per cent to the extent of amount guaranteed and 100 percent
on the outstanding in excess of the amount guaranteed. Banks were also advised
with an example vide paragraph 5.8.6 of our Master circular DBOD No. BP.BC.1/
21.04.048/2002-2003 dated July 4, 2002 on Prudential Norms on income
recognition, asset classification and provisioning pertaining to advances that
in the case of advances guaranteed by ECGC/ DICGC, provision should be made only
for the balance in excess of the amount guaranteed by these corporations.
2. You may be aware that new products are being
developed by insurance companies and it has been brought to our notice that the
New India Assurance Company Ltd. (NIA) has developed a product called Business
Credit Shield (BCS). It has been decided, in consultation with Insurance
Regulatory and Development Authority (IRDA), to extend regulatory treatment to
export credit covered by the BCS of NIA on par with the treatment available to
advances covered by ECGC guarantee for export credit. In this connection we have
advised NIA that they should comply with the provisions of the Insurance Act,
1938, the Regulations made thereunder - especially those relating to Reserves
for unexpired risks and the Insurance Regulatory and Development Authority
(Assets, Liabilities and Solvency Margin of Insurers) Regulations, 2000 and any
other conditions/ regulations that may be prescribed by IRDA in future, if their
insurance product - Business Credit Shield - is to qualify for the above
treatment.
3.
To be eligible for the above regulatory treatment in respect of export
credit covered by BCS policy of NIA, banks should ensure that:
i.
The BCS policy is assigned in its favour, and
ii.
NIA abides by the provisions of the Insurance Act, 1938 and the
regulations made thereunder, especially those relating to Reserves for unexpired
risks and the Insurance Regulatory and Development Authority (Assets,
Liabilities and Solvency Margin of Insurers) Regulations, 2000, and any other
conditions/ regulations that may be prescribed by IRDA in future.
4.
Banks should maintain separate account(s) for the advances to exporters,
which are covered by the insurance under the "Business Credit Shield"
to enable easy administration/ verification of risk weights/ provisions.
5.
Please acknowledge receipt.
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