Banks can play the role of an aggregator on commexes: FMC

Mumbai, Sep 27 | Updated: Sep 28 2008, 06:00am hrs
The commodity futures market regulator Forward Markets Commission (FMC) on Saturday said that banks can take up the role of an aggregator or creditor.

Aggregators act on behalf of farmers who are not comfortable in hedging their crops on exchanges either for want of knowledge or because the quantities are small.

Banks can take a role either as an aggregator or as a creditor or aggregator-cum-creditor, for which Reserve Bank of India (RBI) clearance is not required, FMC chairman B C Khatua said on the sidelines of the Globoil India conference here.

When banks invest in futures market, it is treated as speculative hence RBI approval is required. But lending money as aggregators is considered as agency service, Khatua said.

FMC is looking at various aggregation models so as to develop a policy on aggregation of farmers for participation in the futures market.

FMC is promoting the idea of aggregators for helping small farmers to hedge their crops on commodity exchanges. We are not planning to have a set of norms for aggregators as such, but they have to register with the exchange. The open interest limits may be relaxed for aggregators, Khatua said.

The commission is in favour of promoting aggregators in the form of state marketing federations, NGOs and farmers associations to pool farmers for trading on the commodities exchanges, he said.

Direct participation of farmers in the commodity futures market is somewhat difficult at this stage as the large lot size, daily margin, and high membership fees work as deterrents.

Indias commodity trading its expected to touch a turnover of $1-trillion in 2007/08. The bourses, however, have seen negligible farmer participation in the last four years.

Farmers can directly benefit from the futures market if institutions are allowed to act as aggregators on behalf of farmers, Khatua said.

FMC is trying to facilitate farmers participation through aggregators such as farmers co-operative societies. Farmers should also benefit from the commodities market, they need some hand-holding in the beginning...but their participation will increase the volume and price discovery, Khatua said.