FE Editorial : Banking on commodities
The proposal to allow banks to take forward positions in commodity markets, presumably, stems from the fact that while banks lend to farmers, these positions are largely unhedged since small farmers don’t know how to use such contracts, which means the value of securities (farmers crops) that the banks have are quite volatile. An RBI committee which went into the issue way back in 2005 said banks could, after proper checks and balances and based on their macro portfolio, take independent proprietary positions in commodity futures.
The fact that RBI has not pressed for allowing banks into commodity futures all these years suggests the central bank is not comfortable with the idea, and perhaps even feels commodity markets are not as efficiently regulated as equity or forex markets.
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