Transcript Document
AGRI REVOLUTION FINANCING THE AGRICULTURE VALUE CHAIN Grand Hyatt, Mumbai Date:17th , March 2007 FIELD WAREHOUSING AND THE ROLE OF A COLLATERAL MANAGEMENT AGENCY Presented by Anil K Choudhary MD & CEO National Bulk Handling Corporation Ltd. Title page Post harvest liquidity… A Major Challenge www.nbhcindia.com • Present agro produce marketing system is inefficient & fragmented • Warehouses, their management & receipts issued by them do not enjoy market confidence • Despite being one of the oldest lending products, warehouse receipt funding has been a “no-no” for banks • Higher margins & interest rates do not leave viable option for farmers Farmers in India realize just about 30-35% value ot their produce vis-à-vis 65-70% in the developed economies 2 Ground Reality in Post Harvest Credit www.nbhcindia.com Lower credibility Lack of confidence Not seen as an alternative by farmers /Traders High risk perception Lower liquidity & high price for credit 3 Commodity funding… Inhibiting issues www.nbhcindia.com Warehouse Facilities Warehouse Receipts (WR) •Unreliable performance of warehousemen - fraud & mismanagement • High charges levied to farmers/traders • Negotiability of warehouse receipts •Non-uniformity of WRs • Stamp duty on private Warehouse WRs in some states Collateral Management Services • Responsibility not understood properly •Few quality service providers •Cost of services 4 Commodity funding… Inhibiting issues www.nbhcindia.com Risk Management Issues Commodity Related issues Other issues • Price knowledge • Liquidity on commodity exchanges • Non-acceptance of WR: Tradability without physical delivery • Lack of standardization of grades • Co-mingling / Fungibility risks • Part delivery of goods • Double-financing of stocks • Sales tax on goods changing hands in warehouse 5 Warehousing in India has Multiple Dimensions… www.nbhcindia.com Post harvest liquidity & better price realisation for farmers. A sine-qua-non for efficient commercial trade in agrocommodities. Backbone to commodity exchange – Futures & Spot. To boost Agro & food processing industry 6 VALUE PRODUCE Recent Initiatives…Trickle or Gush ! www.nbhcindia.com • Agri-credit to double in three years – annual growth 30%+ with number of qualitative & outreach targetsfinancial inclusion (This year Budget puts agri lending target at USD 50 bio+) • Setting up of national level commodity exchanges for price discovery, dissemination & price risk management • Electronic national spot market on anvil • Partial rationalization of export-imports of agro commodities • Policy initiatives Model APMC Act Integrated food laws Essential Commodities Act 1955 – Amendments Warehousing Regulations & Development Bill 2005 7 Warehousing Regulation & Development Bill… A Major Step forward www.nbhcindia.com Major provision • Regulation of warehousing business by registering warehouses issuing negotiable warehouse receipt • The establishment & incorporation of an authority to be called The Warehousing Development & Regulation Authority (WDRA) • The registration of accreditation agencies for warehouses to accredit warehouses based on required norms • The condition for negotiability of warehouse receipts by delivery & endorsement • Constitution of the Warehousing Advisory Committee • Likely to result into … Increase in the liquidity in rural areas Encourage scientific warehousing of goods Lower cost of financing Shorter & more efficient supply chains Enhanced rewards for grading & quality Better price risk management 8 Warehouse receipt financing …to spurt www.nbhcindia.com • Post 1969 with introduction of the concept of priority sector – bank’s lending in agri sector predominantly input financing oriented- 95 % + • The impending legislation coupled with several other enabling factors likely to make post-harvest lending a big draw • Increasing disintermediation from corporate lending, Banks are looking for retail opportunities • Warehouse receipt financing to meet mandatory requirements on a commercial keel • Collateral management companies to provide support critical to commodity funding which is likely to touch US $ 25-30 billion in the next 3-5 yrs (presently meagre US $ 3 Billion) 9 On the back of Collateral Management Services www.nbhcindia.com • “ Collateral ” as understood in Indian banking parlance is “secondary source of payment obligations” • “Collateral” in the present context is an asset / 3rd party commitment accepted by the Collateral Taker (Bank) to secure an obligation of the Collateral Provider • “Collateral Management (CM)” involves managing the collateral on behalf of the collateral taker. CM transactions are intended to protect against performance risk of counter party • Banks in India have traditionally been assets based lenders – with hardly any knowledge of asset financed • Reach of Banks, pvt. sector Banks in particular, coupled with lack of domain expertise • Banks, Public & Private, under pressure to expand agri credit portfolio, sound collateral management therefore to become major enabler 10 What Collateral Managers do ?.... www.nbhcindia.com • Identify various inherent and external risks associated with collateral and mitigate these risks with integrated risk management system • Audit , Accredit & Provide storage facilities for commodity funding • Quality and Quantity assurance for both lender and borrower, backs the same with guarantees and insurance Arrange quality certification and quality protection services • Manage storage facilities adhering to operational standards for minimizing loss and risks • Provides services for total control on stock In-bound and outbound logistics support Advisory and Inventory Management services Collateral status reporting on periodical basis Facilitating disposal of collateral, as and when required End to end commodity management solutions & risk management practices targeted to minimize collateral risk and maximize returns to counter party 11 Field warehousing www.nbhcindia.com • Warehouses operated by individual borrowers, under the supervision of a surveillance company (alternatively the surveillance company/warehouse operator may take full control of the borrower's store, sometimes known as " field warehousing"). Forward Market Commission 12 Field Warehousing Prerequisites www.nbhcindia.com • Collateral Manager with proven track record, adequate financial strength & domain knowledge • Storage facility audit to determine suitability for stored commodity • Quality and quantity determination for proper valuation • Leasing arrangement for legal management control over commodity • Proper lien noting • Proper documentation including secure warehouse receipt, insurance coverage , etc • Access , Security and administrative staff to establish control on pledged stock 13 Field Warehousing...Benefits www.nbhcindia.com • Lender No service location limitations Very convenient and cost effective lending mechanism More opportunities for expansion of lending portfolio with secure collateral for borrowers like millers , processors , exporters Stock management by domain experts Regular update on stock health & commodity care Make free from any inclinations or prejudices about stock funding Assurance of quality and quantity to ease the funding process 14 Field Warehousing...Benefits www.nbhcindia.com • Borrower No service location limitations No extra cost involved in logistics, warehousing & handling Convenient and low cost solution for working capital Collateral remain in assurance circle and remain fully usable Credit without hassling production process at processing locations No additional cost involved in reducing risk perception Make free from administrative and transactional procedures 15 CM Arrangements with Banks www.nbhcindia.com • Collateral Manager responsibilities Storage facility audit for structural integrity Commodity quality testing and certification Issuing warehouse receipt with commodity value and quality grade Marking of pledge / lien Risk Management of collateral • Collateral Manager’s liability For anthropogenic damage CM is liable with provision for standard deduction • Stock management • Basic Risk Mitigation practices Full stock value insurance and security arrangements Know Your Customer (KYC) process as stipulated Fidelity guarantee to cover employee related liability • Stock released only after delivery order from bank 16 - Initiative www.nbhcindia.com • Converting status of warehousing from storage to adding value to commodities • Have CM agreements with 8 leading banks including banks which are first time in WRF • Implementing Integrated Risk Management System for commodity based funding • Developed due diligence mechanism for hiring warehouses for exchange delivery , professional warehousing & collateral management • Standard Warehouse Operations Reference Manual complying to ISO 9001 standards • Secure warehouse receipt, security features avoiding forging – IBA preferred security features 17 contd… - Initiative www.nbhcindia.com • Extensive use of Information technology in all operations • Mobile commodity testing and in-house commodity protection services • Weekly commodity update (IntelliComm) • Facilitates disposal of collateral, when necessary • To establish more control over system have in-house quality testing (NBHC PROCOMM), Commodity Protection (NBHC COMMGUARD) , Audit and Accreditation & Commodity Valuation (NBHC MANDATE) & Collateral Management (NBHC CECURE) Services 18 www.nbhcindia.com Collateral Management Services Minimizing Risk… Maximizing Value 19 NBHC Field warehousing www.nbhcindia.com • Maintains custody of the inventory at location specified, and provides regular warehouse receipt to assist the bank in its administrative control of the lien noted stock and location • Regular audit and stock condition intelligence with in-house team – (NBHC MANDATE) • Appoint administrative and security control on funded stock and storage facility • Quality Testing (NBHC PROCOMM) and stock health management (NBHC COMMGUARD) 20 NBHC : A Complete Collateral Manager www.nbhcindia.com Warehousing & Bulk Handling services Commodity Care & Pest Management NBHC CommGuard Consultancy in agrocommodity management Advisory services on spot/futures trading Demat Warehouse Receipt NBHC PLATFORM Risk mitigation and management of commodities Pledge Loans from Banks QC, Gradation & Procurement & Disposal Certification services NBHC ProComm Audit, Accreditation & valuation 21 NBHC Mandate NBHC Cecure- Comprehensive Collateral Security www.nbhcindia.com •NBHC Cecure provides collateral management services based on structured warehouse accreditation & operational fundamentals. Assurance of quality and quantity of the commodities is provided to both depositor and lender. •NBHC Cecure’s Risk Management is a cyclic process. We adopt a 4-step process which includes Risk Identification, Risk Measurement, Risk Management & Risk Mitigation. This process is methodical and proactive, and helps Lenders Manage Risk and Maximise Value. 22 Field Warehousing @ NBHC www.nbhcindia.com Third Party / Own Warehouse 1 3 Quality Assaying of Commodity by NBHC ProComm 2 Deposit Commodity Appointment of NBHC as Collateral Manager WH Receipt by NBHC 4 Bank 5 Pledging WH receipt Financing 623 Farmer/Trader NBHC – field warehousing www.nbhcindia.com Necessary location Inspection exercise & determine risks NBHC CECURE Necessary KYC & other info with intention letter to lender NBHC CECURE Necessary Legal formalities and agreement with Borrower NBHC CECURE Stock lien marking and separate stock control if more than one depositor NBHC CECURE Fund disbursed to borrower Quality testing and issuance of Warehouse Receipt & forwarded to lender Proper stock management and health monitoring NBHC COMMGUARD / NBHC PROCOMM Regular audit for quality and quantity NBHC MANDATE Borrower repays loan NBHC PROCOMM Appointment of security and administrative staff Lender instructions Recognition of collateral Release the stock NBHC CECURE NBHC CECURE LOCK & KEY 24 Thank You Thank you page