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
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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
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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)
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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
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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
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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
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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
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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
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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
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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
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- 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
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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
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www.nbhcindia.com
Collateral Management Services
Minimizing Risk… Maximizing Value
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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)
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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
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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.
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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
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Thank You
Thank you page