The Centre on Wednesday approved capital infusion of Rs 4,400 crore into the ECGC, formerly known as the Export Credit Guarantee Corporation of India, over a period of five years.
Accordingly, the investments will be made from FY2021-2022 to FY2025-2026.
The approved infusion, along with the company's listing process through an initial public offering (IPO), is expected to increase the underwriting capacity of ECGC to support more exports.
The ECGC promotes exports by providing credit insurance services. Its products support around 30 per cent of India's merchandise exports.
"ECGC plays a wider role in supporting exports from the labour-intensive sectors and encourages bank lending to enterprises of small exporters, thereby leading to their revival. Capital infusion in the ECGC will enable it to expand its coverage to the export-oriented industry, particularly the labour-intensive sectors," an official communique said on Wednesday.
"The approved amount will be infused in instalments, thereby increasing the capacity to underwrite risks up to Rs 88,000 crore and this will enable the ECGC to issue covers that can support additional exports of Rs 5.28 lakh crore over the five-year period in line with the existing pattern," it added.
Job creation oppurtunities
As per a report titled 'Exports to Jobs' prepared by the World Bank and the International Labour Organization (ILO), Rs 5.28 lakh crore exports will lead to formalisation of 2.6 lakh workers.
Further, the total number of workers, both formal and informal, will increase by 59 lakh, as per the report.
On the listing approval, the communique said that the process will enable ECGC to mobilise fresh capital from the market either through the same IPO or subsequently through a 'Follow-on Public Offer' and thereby help increase the 'Maximum Liability' cover for it.
"The disinvestment proceeds will be used for financing of social sector schemes. The company intends to increase its maximum liabilities to Rs 2.03 lakh crore from Rs 1 lakh crore by 2025-26," it said.
ECGC Chairman-cum-Managing Director M. Senthilnathan had told IANS earlier: "Currently the maximum liability that the company can underwrite will be about Rs 1.1 lakh crore. With the additional capital of Rs 4,400 crore, the maximum liability that can be underwritten will be about Rs 2 lakh crore. The company's net worth is Rs 5,600 crore."
He had also said that the company's current equity base is Rs 3,450 crore and the solvency ratio will be about 10-11 times against the prescribed level of 1.5 times.
About the business, Senthilnathan had said that the Covid-19 pandemic has affected exports and in turn, the company's business.
For FY21, the company had earned a premium of Rs 1,062 crore and the claims outgo was about Rs 900 crore to Rs 1,000 crore.
The premium income for FY20 was Rs 1,075 crore and the claims were about Rs 400 crore.
"The market is recovering. We hope to log positive growth. While there is export growth, there is no growth in export credit by the banks. Two thirds of our business is derived from export credit by the banks and the balance from the exporters," Senthilnathan had said.
Targeting a premium income of Rs 1,200 crore this year, Senthilnathan said the investment income will be similar to last fiscal's figure of about Rs 850 crore.
(With inputs from IANS)