The state-owned Oriental Insurance has been saddled with claims of Rs 400 crore from five banks,namely,State Bank of India,Bank of India,Indian Bank,Andhra Bank and IDBI Bank. The banks are looking to recover the money paid to the oil companies on behalf of Paramount Airways. Confirming the development,a senior executive at Oriental Insurance said: We have received the claim on account of Paramount Airways and our surveyor is conducting the due diligence. We are also examining legal remedies for the issue. The defunct Chennai-based airline had defaulted on bank guarantees issued by these five banks. Disturbed by the development,Insurance Regulatory & Development Authority (Irda) has banned the sale of credit insurance by general insurance companies,except state-owned Export Credit Guarantee Corporation (ECGC). Without mentioning the Paramount case,an Irda order last week said it believed that insurers were underwriting risks which were not governed by a proper regulatory framework or sanction. Hence,in exercise of powers under Section 14(1) and 14(2)(i) of the Irda Act,1999,the authority orders all general insurers stop sale of these policies till such time the authority formulates detailed guidelines in this regard, Irda observed. At over Rs 200 crore,Bank of India has the largest exposure to Paramounts bank guarantee,while SBI has guaranteed around Rs 80 crore and the others Rs 20 crore each. Promoted by entrepreneur M Thiagarajan,the airline had taken credit insurance cover from Oriental in 2008-09 for its multiple bank guarantees to cover its transactions with state-owned oil companies. A credit insurance is typically taken by a company to cover its sellers dues and in case the buyer fails to pay up,banks which have issued guarantees can lodge a claim with the insurance company to recover the amount. Although Oriental has provided similar cover to other airlines including Jet Airways,this is the first time that such a large claim,linked to a non-export transaction,has been filed. Experts say the manner Oriental underwrote the credit insurance policy in favour of Paramount may not have been entirely proper and the deal has been referred to the vigilance officer at Oriental Insurance. Sources say Oriental had not taken any reinsurance cover for this policy. Irda has also sought details from general insurers on their total exposure under credit insurance policies issued to banks in 10 days. Normally,credit insurance in India is widely bought by exporters and is provided by ECGC against any possible default by overseas buyers. In this particular case,since Paramount had failed to clear its dues involved in the bank guarantee,the banks have gone ahead to claim the amount from Oriental Insurance. DGCA had in July suspended the permit issued to Paramount as it failed to meet the necessary requirements under Aircraft Rules. Following this the Madurai-based carrier filed a writ petition in Madras High Court challenging the DGCA order.
