General Studies · Export Credit & ECGC Coverage
A textile exporter uses a Packing Credit facility and a Post-shipment facility. The exporter receives an export order from a buyer in a country facing political instability and currency devaluation, prompting ECGC to downgrade the country's risk rating. The bank notices a High Concentration Risk, with 80% of sales going to this single buyer. Analyze the risk exposure and the role of ECGC coverage.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Concentration risk is irrelevant in export finance as long as the Letter of Credit is confirmed by a Prime Bank.
- 2The bank should convert the Packing Credit into a Term Loan to avoid it becoming an NPA, as per Force Majeure guidelines.
- 3The ECGC cover will protect the bank against the buyer's commercial insolvency/default, but the bank remains exposed to unhedged Exchange Rate Risk and Country Risk limits.✓
- 4The bank should automatically extend the facility period as SEZ units are exempt from standard RBI norms.
Correct answer
The ECGC cover will protect the bank against the buyer's commercial insolvency/default, but the bank remains exposed to unhedged Exchange Rate Risk and Country Risk limits.
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