indiancommodities.com has pulled off a coup of sorts by bagging the first deal from ICICI Bank, in extending the facility of getting online loans for cotton for its registered members, including cotton consuming mills and traders.

ICICI Ltd will act as calculation agent and monitoring and controlling agent. Similar financing facility may be extended to other online players in the trade.

Barring overdraft facilities for its clients, commercial banks usually do not extend any loans for cotton trade. This huge vacuum istraditionally met informally by private financiers called `adatiyas' who usually charge interest rates varying from 18-21 per cent per annum. It's a usual practice for cotton mills to store around three months of cotton stock for normal working. On an average the monthly mill cotton consumption is estimated to be around 15 lakh bales (of 170 kg each). At an average cost of Rs 10,000 per bale the total fund requirement is estimated to be over Rs 4,500 crore per three months.

ICICI Bank, jointly with indiancommodities.com has changed the rule of this game wherein ICICI Bank has agreed to extend loans for cotton, to members including leading cotton consuming mills and cotton traders of indiancommodities.com at a flat annual rate of 15.5 per cent, payable quarterly. The ICICI bank has limited its initial overall exposure to the members of indiancommodities.com to Rs 30 crore - covering around 30,000 bales of cotton, giving a ratio of Rs 10,000 per one bale (of 170 kg each) which currently is priced at around an average of Rs 10,000 per bale.

Also, the margin to be charged by ICICI Bank will be 30 per cent, while the borrower will get 70 per cent on cotton bales stored in warehouses owned and managed by Central Warehousing Corporation (CWC) and other state owned warehousing corporations. The amount to be financed per member will be in the range of Rs 50 lakh toRs 4 crore."ICICI Bank's arrival with bank finance scheme for the cotton community is at the most opportune time for the cotton consuming mills, especially because currently the mills are busy stocking their cotton requirements and good quality cotton will be available only upto January", said indiancommodities.com chiefexecutive officer (CEO) Alok Sakseria. "Though the margins charged currently by the bank is high, we expect this to come down with increased demand for finance".

Interestingly, of the various number of cotton varieties grown and traded, ICICI will extend loans only on seven main types of Indian cotton which comprise around 70 per cent of cotton traded in India. These are : J-34; V-797; NHH-44; H-4; S-6; LRA; MCU-5. The security of a cotton bale would be against the pledge of a negotiable warehouse receipt issued by the warehouse godown keeper, evidencing the net weight of the cotton bales deposited in one of the approved warehouses. The warehouse receipt shall be accompanied by a quality certification issued by Mahyco, the leading seed manufacturing company. The market value of cotton to be financed would be calculated in the following formulae: W X P , where W is the weight in kg (rounded off to the nearest whole number) as certified by the warehouse receipt. P is the price per kg of applicable variety of cotton as converted from the price printed in the daily rate report published by indiancommodities.com. Said Mr Sakseria: "This is a unique scheme whereby cottonfinancing is being offered on such liberal terms, even mills with less funds will be able to avail of the facility.