Foreign banks do not use ECGC insurance. They have different arrangements to cover risks and will pick up business, Zaveri added.
If the lack of adequate cover impacts the flow of funds from PSBs, units could tap foreign banks for credit limits, said a banking sector analyst. State Bank of India
is the largest domestic lender to the G&J sector with an exposure of about Rs 11,000 crore. Indian banks have already been cautious in lending to G&J units due to a sharp rise in defaults in the aftermath of the 2008 financial crisis.
Without an adequate risk cover on the G&J loan portfolio, public sector banks will face limitations to take additional exposure.
ECGC said it had not stopped giving cover to the G&J industry. It has to operate within norms (for sector and single exporter limits) set out by the Insurance Regulatory and Development Authority. ECGC is in the process of reviewing internal guidelines, said Rohit Pandya, its general manager.
The pace of bank lending to the G&J sector has slowed down to 19.2 per cent in February 2013 from 28.5 per cent a year ago. The outstanding exposure was Rs 58,400 crore in February 2013, according to the Reserve Bank of India.