We have brought liquidity to agri commodities through warehouse financing

Written by Sandip Das | Updated: Jan 31 2011, 07:07am hrs
Private sector participation in handling, storing and marketing of agricultural commodities has been growing steadily, particularly during the last few years following the passage of the Warehousing Development and Regulation Act (WDRA), 2007. National Bulk Handling Corporation (NBHC), promoted by Financial Technologies group along with State Bank of India and MCX, has been facilitating bank financing through warehouse receipt to the farmers. Anil Choudhary, MD & CEO, National Bulk Handling Corporation (NBHC) spoke to FEs Sandip Das on the wide range of issues concerning warehousing. Excerpts:

With the notification of by the government, how are things going to change in the field of storage and bank credit to farmers

Despite the importance of agricultural warehousing in the economy, adequate steps to augment capacity and investment have not been taken in the past. The enactment and implementation of WDRA is therefore a very significant step. It will bring a paradigm shift in the way warehousing as an economic activity is being looked at or the way banks look at post harvest credit. Most significantly, perhaps, it is expected to address one of the major woes of Indian farmer, that of getting liquidity against his produce, thus giving him an option and opportunity to time his sale and realise better prices. Receipts issued by WDRA registered warehouses will become negotiable and the holder in due course will get due protection in case of any defect in title.

Will negotiable warehouse receipt system bring desired change in agriculture credit disbursal system

The commercial banks have a mandate to lend at least 18% of their credit to agriculture sector. However, almost all of it has been in pre-harvest phase. Warehouse receipts as financial instruments, backed by the provisions of WDRA, would have many advantages over the traditional and non-institutional financing avenues. Post disintermediation from corporate credit & reaching a plateau in retail lending, agricultural lending on commercial terms presents a substantial opportunity to banks where negotiable warehouse receipts can play a significant role.

The advent of professional collateral managers like us coupled with negotiable warehouse receipt will provide requisite comforts to financial institutions to take up financing as a channel to fulfil priority sector lending targets on commercial terms. I am sure the credit through WRF will result in higher returns to farmers.

What was the reason for warehouse receipt financing (WRF) to not reach its true potential vis--vis other modes of funding to agriculture

Despite WRF being one of the oldest lending products in public sector banks, it really could never take off due to several infirmities and resultant perception of high risk. Among the risks were low credibility of warehouse management, lack of credible quality assaying capabilities with required geographic reach, commodity value appraising skills and above all, the concern regarding quality & quantity maintenance of agro commodities which are inherently perishable in nature, during the loan tenure. We have been able to create the requisite operational expertise complimented by robust quality assesement capabilities and outreach. Our quality and quantity guarantee has encouraged banks to lend against this asset class on significantly improved terms.

NBHC is said to have brought liquidity to agro commodities. Please elaborate.

When we started facilitating finance against agro-commodities, we joined hands with various bankscommercial, foreign banks, RRBs, District Cooperative Banks, etc. Initially WRF was limited to exchange traded commodities as banks derived comfort from the available information on quality parameters of a commodity, the spot and future prices etc. However, with concerted and committed efforts of NBHC by addressing relevant issues and concerns, we could bring liquidity to around 125-150 agro-commoditiesprimary as well as processed.

A nation-wide network of over 900 locations across 19 states enables banks to facilitate funding against NBHC issued warehouse receiptsranging in values, from as low as Rs 1,000 to as high as Rs 40 crore. As a result of our effort, banks today have a more secure and commercially viable platform to lend to farmers.

How many farmers have taken the advantage of WRF through NBHC

Till date, we have facilitated direct funding worth about Rs 1,000 crore to more than 70,000 farmers and many more through group financing, like joint liability groups.