Saturday, January 15, 2011

CREDIT INSURANCE DOOR OPENS, CONDITIONS APPLY

Three months after it banned all forms of credit insurance, the regulator has allowed companies to provide limited trade credit protection. Credit insurance will, however, not be available for securing bank credit. In September, the Insurance Regulatory and Development Authority (IRDA) banned all forms of credit insurance except for the cover provided by the Export Credit Guarantee Corporation. The ban came in the wake of large defaults on credit insurance policies issued by state-owned companies. The state-owned Oriental Insurance was left with a large credit risk exposure of close to Rs.400 crore after paramount Airlines failed to meet its obligations to lenders. The new guidelines enable insurance companies to provide cover for trade, but the credit insurance policies cannot be assigned to banks. In other words, the seller cannot realize the proceeds of sale from a bank using the credit insurance policy as a security. Second, insurers have been barred from selling protection for a single transaction and have to cover all the trades.

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