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Tech firms seek default insurance

Tech firms seek default insurance
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First Published: Fri, Jul 31 2009. 12 01 AM IST

Updated: Fri, Jul 31 2009. 12 01 AM IST
Hyderabad/Bangalore: The country’s top software exporters are, in a first for them, exploring credit guarantees on sales to the US, on rising concerns over payment defaults from customers reeling under the worst recession since the 1930s.
Export Credit Guarantee Corp. of India Ltd (ECGC), the government agency that offers risk covers to Indian exporters on payment defaults by overseas customers, is in talks with technology firms, including Infosys Technologies Ltd and Wipro Ltd for such guarantees, a top official said.
“Till yesterday, major software exporters never bothered about us. Today, they are in the queue,” said A.V. Muralidharan, chairman and managing director of ECGC. “The major reason for this (is) the falling revenues of foreign customers, who, in a bad economy, prefer to pay to other creditors and delay payments to software exporters from India.”
The US accounts for around 60% of India’s software and outsourcing exports. But technology spending from US customers has come down over the past two years since the start of the subprime crisis.
Infosys and Wipro, India’s second and third largest software exporters, had said while announcing their quarterly results recently that the technology cut backs have stopped and the market could see a revival in 2010.
India’s software and outsourcing exporters contributed less than 5% to the Rs745 crore premium earned by the credit guarantee agency in 2008-09, but the claims were high at 185%, Muralidharan said.
Overall, claim disbursals during the year amounted to Rs450 crore.
Wipro’s chief financial officer (CFO) Suresh Senapaty said the company has sought customized credit guarantee products for the software sector to make the cover inexpensive.
“If they can offer a product that is inexpensive and is less than our (industry’s) write-offs, why not?” he said. “It is a normal and usual exploration, just like getting a general insurance cover. You have seen the four or five bankruptcies (of companies in the US).”
Infosys’ CFO V. Balakrishnan, when asked if the company had sought credit guarantees from ECGC, said, “They met us. We have sought for clarifications.”
Analysts say software firms have had payment issues from mid-tier financial services, mortgage and credit card companies and it makes sense for them to opt for an insurance cover against such defaults.
“Receivable default in a bad economy is a risk—in that risk, there are worries. You take a variety of routes (to safeguard that),” said Milan Sheth, partner, advisory services (IT outsourcing), at audit and consulting firm Ernst & Young.
ECGC, on its part, is also cautious about offering large risk guarantees considering the slowdown.
“Couple of (software) players have approached us for coverage of Rs1,000 crore of exports, each willing to pay some Rs30-35 crore,” said Muralidharan. “But if it (export market) bursts, then it will be a problem. We are tying to be very cautious and we are not that keen on offering them such cover.”
India’s export-focused IT services industry will witness a 4-7% fall in growth to $48-50 billion (Rs2.3-2.4 trillion) in the current fiscal year, industry lobby Nasscom had said in a report on Wednesday.
That fall is the slowest in nearly a decade.
The software and outsourcing sector, which accounts for at least one-fourth of India’s exports, grew 16.3% to $46.3 billion in the year to March.
c.sukumar@livemint.com
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First Published: Fri, Jul 31 2009. 12 01 AM IST