CAG blasts ECGCIL arrangement with banks | delhi | Hindustan Times
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CAG blasts ECGCIL arrangement with banks

delhi Updated: Dec 05, 2012 20:20 IST
Sanjib Kr Baruah

A consortium of government banks financed diamond exporters exposing the state-owned Export Credit Guarantee Corporation of India Limited (ECGCIL) to enhanced credit risk, resulting in losses to the public exchequer, the CAG has revealed in its latest report.

The loss is estimated at about Rs 310 crore for ECGCIL during 2008-11.

All this while, ECGCIL had no way of knowing of the consortium arrangement except only at the time of their filing the default report. The diamond consignments were for buyers in Hong Kong.

“Out of 29 banks to whom Whole Turnover Packing Credit (WTPS) cover was issued, the Claim Premium Ratio (CPR) of 13 banks was more than 200% and resulted in a loss of ` 309.27 crore during 2008-09 to 2010-11,” the CAG report said.

Under the commerce ministry, ECGCIL is mandated to promote exports by covering the risks of exports on credit. It is registered with Insurance Regulatory and Development Authority (IRDA) as a general insurance company dealing in credit insurance policies and covers.

“It was noted in audit that the same individuals were figuring as CEO for different buyers based at Hong Kong,” the CAG said. The same individuals were either owners or chief executive officers representing more than one buyer.

It also said that while underwriting individual risks of exporters, ECGCIL only relied on information furnished by the banks without any access to the banks’ appraisal system.

“The company (ECGCIL) paid claims of Rs. 316.13 crore despite buyer verification reports obtained by the banks being either outdated or unsatisfactory or post dated,” the report said.

During 2008-11, ECGCIL also renewed the covers to the banks irrespective of their claim ratio and there was no system of loading the premium in respect of banks having adverse claim ratio.

Despite acceptance of recommendation made earlier by audit to make the buyer’s verification mandatory by the banks, the company continued to pay claims even though the buyer verification reports were either outdated or unsatisfactory or post dated.