RBI governor YV Reddy?s announcement that the RBI will carry out supervisory review of banks? exposure to the commodity sector has been welcomed by the banks. Under the new norms laid by the RBI, banks are required to review their advances to traders in agricultural commodities to ensure that bank finance is not used for hoarding and forward the first such review to the Reserve Bank by May 15, 2008 to carry out supervisory review of banks? exposure to the commodity sector. It advised banks to exercise caution while extending such advances to ensure that bank finance was not used for hoarding.
They feel that it was basically to discourage the excessive hoardings of foodgrains by the commodity traders and benefit the small farmers who approach banks for short-term loans to sell their crop at the commodity exchanges. MBN Rao, chairman and managing director, Canara Bank, said that the RBI?s move was to stop the excessive hoardings. But, Rao maintained that the move will not have its impact on my bank?s exposure to the commodity sector as my bank was lending mostly to the small farmers for sort-term duration.
MD Mallya, chairman and managing director, Bank of Maharashtra, said that RBI will ensure that banks should not lend for hoarding purpose, rather they should lend to the commodity traders for economic activities. As we do take into account our all lendings on the front, I don?t think the RBI?s step will affect the exposure of my bank?s exposure to the commodity sector.
The prudential guidelines for specific off-balance sheet exposures of banks is to be reviewed. Reserve bank will carry out supervisory review of banks? exposure to the commodity sector. Consolidated supervision of financial conglomerates proposed. RBI will set up a working group for a supervisory framework for special purpose vehicles/trusts. Commenting on the issue, Devendra Vora, a leading merchant, said, ?Banks will have to submit review of commodity advances to RBI by May 15 and I think all the commercial banks may tighten their advances to the commodity sector mainly to traders, processors and commodity crushers at least for time being. It is just to prevent hoarding of essential commodities at the time when prices are on rise.?
Banks offers commodity loan mainly to big traders, producers and commodity processors includes flour millers, dal mills, oilseeds crushers and ginners (especially for cotton).
”With the rising prices of major essential commodities such as rice, wheat, oilseeds, and pulses, banks will be more careful about commodity loans. I believe banks will also review loans against warehouse receipt, another trader said.”