Transcript Document

Collateral Management
Balancing Growth and Regulation
Session: Indian Commodity Markets
Date: 22nd March 2012
Anil K. Choudhary
Managing Director & CEO, NBHC
www.nbhcindia.com
Indian Commodity Markets
Realizing its potential
• Value of annual farm produce - about USD160+ billion
• One of the large producers of Rice, Wheat, Sugar, Cotton, top producer of milk, largest in fruits and
second largest in vegetables, jute, etc. and also one of the large consumers of these commodities
• Advance estimates (2011-2012) of food grain production pegged at 250 million MTs of food-grains
• Largest government system for food grain procurement & distribution, market intervention for food
prices and minimum support prices to the farmer, thus ensuring optimal returns to him
CHARACTERISED BY
• Fragmented markets
• Post-harvest supply chain infrastructure
deficient in quality and capacity
• Price Information opacity and asymmetry
• Access to affordable credit lines cumbersome
• Weak / inadequate support institutions
• Long commodity value-chains
RECENT INITIATIVES
• Commodity Futures – one of the world’s largest
and state-of-the-art, e-Spot and Futures Markets
• Regulatory Impetus – APMC Act, WDRA, Food
Safety Act, tax regime review - GST, etc.
• Renewed focus on Agriculture development
• Congenial policy and market environment for
investment in commodity markets
• PPP enablement and facilitation for Private
sector investments and participation
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Agri-Commodity Management
Attracting positive traction
Year 2011 – watershed year for the Warehousing sector, expected to spur investments
with the sector’s traction becoming positive
Key Developments
INFRASTRUCTURE STATUS
• Granting of infrastructure status to PPP in this sub-sector - expected
to attract large scale investments in cold-chains and storage
infrastructure
FUNDING FROM RIDF
• Recognizing warehousing as a critical rural infrastructure the
allocation of about USD 400 million made (2011-12) from RIDF for the
first time, enabling low cost funding
Congenial policy
environment coupled with
strong business logic and
growth prospects fuels the
recent surge in sectorial
investment plan
PRIVATE EQUITY INVESTMENT IN CM & WAREHOUSING COMPANIES
• Renewed and increasing interest in agri-warehousing and logistics
by PE funds looking to favorable policy environment
SUBSIDY AND RELEVANT SCHEME ENABLERS
• Reconsideration of rate of capital cost for subsidy under capital cost /
subsidy from NABARD revised
• PEG for the Government’s Central Pool made attractive
ADVENT OF WDRA
• One of the most significant steps in recent times: To impart
negotiability to warehouse receipts and enable orderly development
of the sector
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-THE WAY AHEADConsistent and Viable Policy
Support which promotes
Private Investment will
simultaneously help achieve
Govt. Objectives &
Commercial Sustainability
Collateral Management
Facilitating efficient & economical Risk Management
For success of various initiatives to bring efficiency and economy to agriculture
marketing and commodity management, CM services facilitating WRF can ease the
transition and ensure success of these initiatives
Collateral Manager : An Entity that ensures the integrity of warehouses the quality of commodities held therein,
so that these can be offered as loan collateral.
Source : UNCTAD
Collateral Managers’ Role in Commodity Financing
VALUE APPRAISAL
Accurate Assessment
VALUE PROTECTION
End-to-end management
•
•
Advising lender about any deficiency in commodity provided by borrower as collateral
Accurate assessment of quality, volume and value of collateral along with requisite timeline ( validity ) inherent for perishable commodities
•
Ensuring complete custody of collateral; legal as well as physical
•
Periodic and timely quality audit & assessment and advising bank & borrower for requisite
preemptory actions
•
Ensuring appropriate checks, verification and systems to monitor bank-borrower
transactions on the underlying of collateral
•
Marked-to-market valuation for preemptory mitigation of risks arising out of market volatility
•
Mitigating any other risks with appropriate guarantees and insurance
•
Facilitates timely disposal of collateral in case of defaults
Process driven
VALUE REALIZATION
Successful closure
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Agri-Commodities & Banks
WRF – Reliable instrument for Secure & Viable Credit to Agriculture
Commodity Finance
Banking
• Disintermediation from Corporate lending &
hitting a plateau in other asset segments
• Evolving marketing & information infrastructure
presenting opportunities of over USD 20-25 Bn
• Ever-increasing Priority Sector Lending targets
• A CM can address operational limitations thus
increasing the banks asset base with wider
borrower with fewer risks
• Asset - Liability mismatch
• Commodity finance - short-term & self
liquidating
• Increasing focus on direct agriculture / farm
lending
• Commodities in storage act as collateral,
effectively easing credit monitoring for large
pool of borrowers
• Developing marketing infra providing improved
liquidity
• Achieving financial inclusion in a sustainable
and profitable manner
• Prevents farmers from distress sales and also
provides post-harvest cash-flow
• Improving performance & reduction of NPA visà-vis the regulatory aspects
• Asset under custody is pledged, hence
recourse to liquidation of Collateral in case of
default is unhindered
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Farm Produce / Inventory Financing
Risk Matrix
Current state of commodity marketing and post harvest infrastructure makes commodity financing a
complex proposition for banks, but a collaboration with a competent collateral manager not only
creates an efficient and economical system, but also enables banks to meet regulatory compliances
CREDIT RISK
Price Risk
Market Risk
Legal Risk
Operational Risk (Quantity & Quality Risk)
Commodity Characteristics
Market / Price Sensitivity
– Shelf life
– Market size, spread and depth – Location of the storage
(liquidity)
facilities
– Specific handling
requirements
– Numerous grades and
varieties
Operational Factors
– Price information transparency – Facility management and
man-power involved
– Market volatility
– Market intelligence –
participants, transparency in
transactions etc.
– Collateral Manager expertise
and experience
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Regulatory Risk
Reputation Risk
– Policy factors
– Social & Borrower related
Factors
Enablers & Facilitators
Wheels for successful WRF System
• Principles of lending against stored commodities date back to ancient times (the first written records come
from ancient Mesopotamia)
• In India, warehouse receipt based financing is one of the oldest lending products for PSBs
• Regulatory and Policy enablers provide acceptability for commodity based funding, and also reduces the
cost to the recipients of credit
• Facilitators are connectors between the lender and borrower, enabling the lender to fund the commodities
under storage thus also creating accessibility for the borrower
Acceptance
Regulatory
&
Supervisory
Agency
Ability
FINANCIAL INSTITUTION
Policy &
Legal
Framework
Value
Appraisal
STORAGE & SUPPORT INFRASTRUCTURE
FACILITATORS
ENABLERS
Financial
Performance
Guarantee
BORROWERS
Affordability
Value
Protection
Accessibility
Value
Realization
Source: In-house , various sources including USAID, UNCTAD, WORLD BANK studies
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Key Initiatives and Support
8
Policy development, Investments and Regulation
Allowing Banks to participate on Commodity Futures platform :
• Facility to hedge price-risk on commodity exchange platform will help banks to fund producers at lower
margins ultimately providing higher liquidity at farmers’ level and across the value chain
Code of Conduct for Collateral Management Service Providers :
• A realistic proposition considering the size or the investments made in these projects
Infrastructure Development Support :
• In order to encourage larger entities / corporate participation, assistance should be provided to acquire or
to give land on long-term lease from government
System of MSP Procurement with NWR and WRF:
• Linking WDRA accredited facilities for MSP procurement
Others:
• Development of network of facilities using WRF linked accounts, e.g. Input retailing
• National-level database of Warehouse / Storage receipts financed to enable tradability of the WR
• Incentivize lenders financing small & marginal farmers via WRF
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National Bulk Handling Corporation Ltd.
(NBHC)
INDIA’S LEADING INTEGRATED AGRI-COMMODITY & COLLATERAL MANAGEMENT COMPANY
• 1st and only Warehousing & Commodity
Management Solutions Provider in India
to obtain ISO 22000:2005 certification
and category ‘F’ membership of Grain
and Feed Trade Association (GAFTA)
• Sole agri-commodity futures Delivery
Manager for India’s No.1 Commodity
Futures Exchange
• Facilitated post-harvest credit, as never
before
Facilitating complete operational and economic efficiencies in supply chain.
Adding value to commodities.
NBHC – Quick Facts:
Commodities Managed
WRF Funding
Number of commodities
QA Labs
Banks
CCPM Licenses
16+ mn MT
USD 4.5+
billion
125+
50
37
25
Human Resources
3,500#+
# also includes contractual staff
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THANK YOU
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