Finding the gems and jewellery industry risky post the PNB scam, the Export Credit Guarantee Corporation (ECGC) has brought down the insurance cover on the exports by the industry to 50 per cent. For the past five years, the sector has been registering the highest claims ratio.
Prior to 2013-14, ECGC has been providing over 75 per cent credit cover to gems and jewellery exports as any other industry. In the past five years, ECGC has been finding that the sector has been making the highest claims ratio.
Several big companies have been defaulting on the credit and of late the Punjab National Bank scam involving Nirav Modi and Mehul Choksi’s firms has made the Export Credit Guarantee Corporation go light on providing cover to gems and jewellery exports. In the past six months, the cover has come down from 65 per cent to 50 per cent.
“Only some of the older companies, which have been getting the cover for several years, are now able to secure insurance from ECGC. They are not providing the cover to relatively newer companies. We have taken up the issue with both ECGC and the banks and are expecting a resolution to the issue,” said Colin Shah, vice-chairman, Gems and Jewellery Export Promotion Council.
However, ECGC officials said the sector has become riskier for the company and it has been eroding the profitability.
According to an industry insider, earlier ECGC used to insist on whole turnover cover while insuring the credit of any exporter. However, exporters have been selective in getting cover. They would not pay premium or get cover for less risky exports to known, genuine clients. However, when it would come to riskier exports, they would seek ECGC cover. This was increasing the risk of the ECGC and leading to higher claims ratio.
Without proper risk cover, banks are also reluctant to finance the gems and jewellery industry, which already is finding it difficult to procure finance post the PNB fraud.