Related News

Chinese suppliers under pressure as payment terms lengthen and competition heats up

Broker WTW buys Global Commercial Credit in US expansion

Williams takes over as Allianz Trade chief in UK and Ireland

Allianz Trade appoints new reinsurance head

Insurtech Cartan Trade names France country head

Indian financial institutions are seeking better capital treatment of trade credit insurance as part of the country’s review of trade finance.  

The country’s domestic banks are discouraged from offering financing products such as domestic and cross-border factoring because they do not benefit from reduced capital requirements when they use credit insurance, unlike lenders in markets such as Europe and Singapore.  

India’s government embarked on a review of the trade finance marketplace and regulation last year, as it seeks to boost exports from the world’s fifth-largest economy to US$2tn per year by 2030.  

In an industry survey carried out by EY, many exporters reported that their trade finance requests are frequently rejected, and that they are subject to burdensome collateral requirements and steep interest rates.  

Lenders and insurers want the Reserve Bank of India (RBI) to recognise trade credit insurance as a credit risk mitigant, which they say would reduce capital requirements on products such as factoring and unleash domestic banks into the market.  

Lenders active in India but headquartered in jurisdictions such as the EU and UK can take advantage of capital relief afforded to credit insurance in those markets, and are active in the local factoring market alongside non-bank providers.  

Currently, the RBI only recognises insurance provided by the Indian export credit agency, the Export Credit Guarantee Corporation (ECGC).  

Without insurance, banks usually offer SMEs loans or documentary trade products, which are more expensive than solutions such as factoring that monetise companies’ accounts receivable, says Akshay Bhardwaj, senior vice-president at broker Marsh.  

If banks are allowed to use insurance, they may be able to factor an invoice for as low as 6-8%, Bhardwaj says, around half what he says is on offer from non-bank providers.  

“The moment they allow it, this market will explode,” he tells GTR. 

Ravi Valecha, chief executive of India Factoring and Finance Solutions, says: “It’s a win-win solution for the banks. If the capital relief and other enhanced reforms are available, it is win-win solution for the MSMEs, also – they will get much easier access to finance.”  

Despite doubling since 2021, factoring turnover in India stood at €17.4bn in 2023, a small fraction of China’s €634.5bn and even less than the much smaller economies of Greece and Denmark, according to industry association FCI. 

Global credit insurers active in India, such as Allianz Trade, Atradius and Coface, could also be big winners from the reform. Cross-border insurers are not allowed to issue policies in India but are still active through fronting arrangements with local providers.  

Gross annual trade credit insurance premiums from non-ECGC commercial providers in India are estimated to be around €80mn, says Arun Soundarajan, Atradius’ India chief executive. If the RBI changes the rules and local banks join the ranks of customers, he says “the market could grow quite substantially”.  

Imran Khan, country director for Allianz Trade, says the reform could help the market double within three or four years, and help “realise the true potential of export-oriented SMEs”.  

Banks have previously called for the capital relief, but the push has been reignited as the government looks for ways to boost trade finance for SMEs and lift exports.  

At an industry-wide meeting on trade finance last October chaired by the commerce secretary, the RBI was directed to collaborate with Marsh on a submission on recognising trade credit insurance as a risk mitigant under capital rules. The central bank did not respond to questions from GTR.  

 

Budget announcements 

The Indian government has enacted reforms designed to boost domestic and trade financing over the last decade, including the Trade Receivables Discounting System marketplace and a fledgling international equivalent, International Trade Financing Services platform, in the Gift City freezone.  

In February’s federal budget, the government pledged to establish a new trade platform called BharatTradeNet as well as an export promotion mission.  

A government announcement said BharatTradeNet would be “a unified platform for trade documentation and financing solutions” to simplify trade paperwork and finance for corporates.  

The commerce ministry’s director general of foreign trade, Santosh Kumar Sarangi, was quoted by the Financial Express as saying: “We will move towards the digitisation of the entire range of trade documentation and then allow seamless interoperability between different agencies which are involved in this.” 

The system will also “ease” trade financing, he reportedly added, although said it would take two or three years to set up a new public company. Sarangi did not respond to an interview request from GTR.  

Kalyan Basu, India managing director for MonetaGo, says he expects BharatTradeNet “will be a kind of a universal registry for documents related to trade for authentication, verification, registration [and] transferability” which banks and other financiers will use to provide financing.

Details of the export promotion mission do not appear finalised, but local media reported that it will focus on improving the availability of credit for exporters and has initial funding totalling Rs22.5bn (US$260mn).  

The export promotion mission “is expected to not just facilitate exporters [and] provide them international market access, but also ease the trade financing ecosystem in India and assist them with easy access to affordable export credit,” says Ankit Bansal, a programme manager at EY and team leader on the study the consultancy conducted for the government. 

The government said last week that commerce and industry minister Piyush Goyal had “urged the industry to come forward with suggestions to effectively shape” the export promotion mission. 

The focus on trade comes against a backdrop of uncertainty over India’s ties with the Trump administration, which has lambasted New Delhi for its steep import tariffs.  

India reported US$395.6bn in goods exports between April 2024 and February 2025, almost identical to the previous 11-month period. Strong services exports pushed the overall export figure to US$750.5bn, meaning exports must more than double over the next four years to meet the government’s US$2tn goal.