Calcutta, Feb. 18: Bajaj Allianz General Insurance Company is planning a debt recovery company by June this year as part of its corporate credit insurance business.

The insurer, in association with Allianz group company Euler Hermes, is offering a plan to companies under which firms are paid in part or in full the receivables from their clients in case of a default.

With growing international and domestic trade, the risks of defaults in business-to-business transactions are also increasing.

Other Indian companies such as Tata AIG General Insurance Company and New India Assurance Company also offer credit insurance.

According to Hans-Peter Schottler, general manager (credit insurance), Bajaj Allianz, “We are offering this credit insurance to companies having a minimum annual turnover of Rs 10 crore. Besides, a company will have this insurance to cover at least five of its clients.”

An official of New India Assurance Company said there were uncertainties involved when a company did business on credit, making it necessary to seek cover against non-payments.

The public sector insurer is offering corporate credit insurance, Business Credit Shield, in association with Atradius, in which Swiss Re and Deutsche Bank own majority stakes.

S. Srinivasan, chief financial officer, Bajaj Allianz, said corporate credit insurance was more than an export credit insurance programme as it covered domestic trade as well.

The premium on this type of policy, which can be customised according to the need of the insured firm, depends on the sales turnover of the firm, concentration of sales among its trader-buyers and their credit worthiness.

“We are preparing a database of 10,000 domestic companies and rate them on a scale of 1 to 10. Besides, we have a global database,” said Schottler.

While the insurer pays the insured when the clients default, the insurer recovers the money from the defaulters at a later date through legal and other means.

Bajaj Allianz will set up a debt collection company for the recovery, which may outsource the work.

Credit for SMEs

The company is planning to offer credit insurance to small and medium-sized companies.

“It will be a simpler, low-cost product that can be sold online to small and medium enterprises. We are working on it and will offer it soon,” Schottler said.

According to a 2002 circular by the Reserve Bank of India, banks are allowed to assign a lower risk weight to companies having credit insurance.

This means if a company has credit insurance, it can bargain for lower interest rates on loans, Schottler added.