Presentation is loading. Please wait.

Presentation is loading. Please wait.

Collateral Management

Similar presentations

Presentation on theme: "Collateral Management"— Presentation transcript:

1 Collateral Management
Balancing Growth and Regulation Date: 22nd March 2012 Anil K. Choudhary Managing Director & CEO, NBHC Session: Indian Commodity Markets

2 Indian Commodity Markets Realizing its potential
1 April 2017 Indian Commodity Markets Realizing its potential Value of annual farm produce - about USD160+ billion One of the large producers of Rice, Wheat, Sugar, Cotton, top producer of milk, largest in fruits and second largest in vegetables, jute, etc. and also one of the large consumers of these commodities Advance estimates ( ) of food grain production pegged at 250 million MTs of food-grains Largest government system for food grain procurement & distribution, market intervention for food prices and minimum support prices to the farmer, thus ensuring optimal returns to him CHARACTERISED BY RECENT INITIATIVES Fragmented markets Post-harvest supply chain infrastructure deficient in quality and capacity Price Information opacity and asymmetry Access to affordable credit lines cumbersome Weak / inadequate support institutions Long commodity value-chains Commodity Futures – one of the world’s largest and state-of-the-art, e-Spot and Futures Markets Regulatory Impetus – APMC Act, WDRA, Food Safety Act, tax regime review - GST, etc. Renewed focus on Agriculture development Congenial policy and market environment for investment in commodity markets PPP enablement and facilitation for Private sector investments and participation Indian Farm produce – farm gate level value is about -India produce about 10% of worlds food grain production

3 Agri-Commodity Management Attracting positive traction
1 April 2017 Agri-Commodity Management Attracting positive traction Year 2011 – watershed year for the Warehousing sector, expected to spur investments with the sector’s traction becoming positive Key Developments INFRASTRUCTURE STATUS Granting of infrastructure status to PPP in this sub-sector - expected to attract large scale investments in cold-chains and storage infrastructure Congenial policy environment coupled with strong business logic and growth prospects fuels the recent surge in sectorial investment plan -THE WAY AHEAD- Consistent and Viable Policy Support which promotes Private Investment will simultaneously help achieve Govt. Objectives & Commercial Sustainability FUNDING FROM RIDF Recognizing warehousing as a critical rural infrastructure the allocation of about USD 400 million made ( ) from RIDF for the first time, enabling low cost funding PRIVATE EQUITY INVESTMENT IN CM & WAREHOUSING COMPANIES Renewed and increasing interest in agri-warehousing and logistics by PE funds looking to favorable policy environment Private Entrepreneur Guarantee Scheme CONSTRUCTION OF GODOWNS UNDER PRIVATE ENTREPRENEURS GUARANTEE (PEG) SCHEME OF FCI Due to the increased procurement of foodgrains and to reduce the storage in Cover and Plinth (CAP) the Government formulateda Scheme for construction of storage godowns through private entrepreneurs, Central Warehousing Corporation (CWC) and State Warehousing Corporations (SWCs). Assessment of additional storage needs under the scheme is based on the overall procurement/consumption and the storage space already available. For the consuming areas, storage capacity is to be created to meet four month’s requirement of PDS and other Welfare Schemes in a State. For the procurement areas, the highest stock levels in the last three years are considered to decide the storage capacity required. Later this scheme was extended to Decentralised Procuring (DCP ) states in 2009. The Warehousing (Development And Regulation) Act,2007 Salient Features Regulation of warehousing activities through registration of warehouses and accreditation WDRA registered warehouses to issue Negotiable warehouse receipts Liabilities, duties and responsibilities of warehouses laid down Uniform format for Negotiable Warehouse Receipts with terms and condition on NWRs. Conditions for negotiability of warehouse receipt by delivery and endorsement Legal provisions for offences, penalties and appeals Powers of the Central Government SUBSIDY AND RELEVANT SCHEME ENABLERS Reconsideration of rate of capital cost for subsidy under capital cost / subsidy from NABARD revised PEG for the Government’s Central Pool made attractive ADVENT OF WDRA One of the most significant steps in recent times: To impart negotiability to warehouse receipts and enable orderly development of the sector

4 Collateral Managers’ Role in Commodity Financing
Collateral Management Facilitating efficient & economical Risk Management For success of various initiatives to bring efficiency and economy to agriculture marketing and commodity management, CM services facilitating WRF can ease the transition and ensure success of these initiatives Collateral Manager : An Entity that ensures the integrity of warehouses the quality of commodities held therein, so that these can be offered as loan collateral. Source : UNCTAD Collateral Managers’ Role in Commodity Financing VALUE APPRAISAL Accurate Assessment Advising lender about any deficiency in commodity provided by borrower as collateral Accurate assessment of quality, volume and value of collateral along with requisite time-line ( validity ) inherent for perishable commodities VALUE PROTECTION End-to-end management Process driven Ensuring complete custody of collateral; legal as well as physical Periodic and timely quality audit & assessment and advising bank & borrower for requisite preemptory actions Ensuring appropriate checks, verification and systems to monitor bank-borrower transactions on the underlying of collateral Marked-to-market valuation for preemptory mitigation of risks arising out of market volatility VALUE REALIZATION Successful closure Mitigating any other risks with appropriate guarantees and insurance Facilitates timely disposal of collateral in case of defaults Collateral Management in context of Agriculture commodity financing Current Status of Agro-Commodities Collateral Management in India Local commission agents who act as facilitators as well as Collateral Managers Very few CM service providers with end-to-end commodity management capabilities Limited awareness about the role as well as responsibility of a Collateral Manager among borrowers and lenders Lack of transparent benchmarks to rate Collateral Managers Paucity of technically proficient manpower

5 1 April 2017 Agri-Commodities & Banks WRF – Reliable instrument for Secure & Viable Credit to Agriculture Banking Commodity Finance Disintermediation from Corporate lending & hitting a plateau in other asset segments Evolving marketing & information infrastructure presenting opportunities of over USD Bn A CM can address operational limitations thus increasing the banks asset base with wider borrower with fewer risks Ever-increasing Priority Sector Lending targets Commodity finance - short-term & self liquidating Asset - Liability mismatch Commodities in storage act as collateral, effectively easing credit monitoring for large pool of borrowers Increasing focus on direct agriculture / farm lending A more secure way to fund priority sector (agriculture) Better control and convenience in management of collateral Enhanced credit delivery and recovery mechanisms Efficient / adept management of contingency situations Marketable instrument for developing Indian economy Easier exit being a pledgee , thus much lower chances of NPA Short term and self liquidating - Effectively addresses the issue of asset – liability mismatch in the changed scenario Achieving financial inclusion in a sustainable and profitable manner Developing marketing infra providing improved liquidity Prevents farmers from distress sales and also provides post-harvest cash-flow Asset under custody is pledged, hence recourse to liquidation of Collateral in case of default is unhindered Improving performance & reduction of NPA vis- à-vis the regulatory aspects

6 Farm Produce / Inventory Financing Risk Matrix
1 April 2017 Farm Produce / Inventory Financing Risk Matrix Current state of commodity marketing and post harvest infrastructure makes commodity financing a complex proposition for banks, but a collaboration with a competent collateral manager not only creates an efficient and economical system, but also enables banks to meet regulatory compliances CREDIT RISK Price Risk Market Risk Legal Risk Regulatory Risk Reputation Risk Operational Risk (Quantity & Quality Risk) Commodity Characteristics Shelf life Specific handling requirements Numerous grades and varieties Market / Price Sensitivity Market size, spread and depth (liquidity) Price information transparency Market volatility Market intelligence – participants, transparency in transactions etc. Operational Factors Location of the storage facilities Facility management and man-power involved Collateral Manager expertise and experience Policy factors Social & Borrower related Factors Distinct characters of commodity collateral makes it unique for managing apart from credit risk there are major risks affecting the commodity collateral Social factors – like undesirable geography based on historical experience of other lenders – like west bengal – more propensity to NPA Borrower factors - A group of businesses or people found to be undesirable for credit Banks need to have an established selection criteria for collateral manager as that is the factor will actually ensure performance guarantee of borrower or collateral Good track record and reputation Ability to measure the quality and quantity of commodities Competence in enforcing precise and enforceable - legal arrangement Good MIS system to assist in mark-to-market and regular tracking Strong insurance qualified and well trained man-power Frequent and standard audit mechanism Satisfactory reporting mechanism Commodity Market Infrastructure Others

7 Wheels for successful WRF System
1 April 2017 Enablers & Facilitators Wheels for successful WRF System Principles of lending against stored commodities date back to ancient times (the first written records come from ancient Mesopotamia) In India, warehouse receipt based financing is one of the oldest lending products for PSBs Regulatory and Policy enablers provide acceptability for commodity based funding, and also reduces the cost to the recipients of credit Facilitators are connectors between the lender and borrower, enabling the lender to fund the commodities under storage thus also creating accessibility for the borrower Policy & Legal Framework Financial Performance Guarantee Regulatory & Supervisory Agency Value Protection Value Realization Value Appraisal BORROWERS STORAGE & SUPPORT INFRASTRUCTURE FINANCIAL INSTITUTION Affordability Accessibility Acceptance Ability During , financing through WRF was estimated in the range of Rs Crs. Currently WRF portfolio for all SCB estimated at about Rs.15,000 Crs. against the estimated potential of Rs.100,000 – Rs.125,000 Crs. WRF forms <3% of the total agriculture credit FACILITATORS ENABLERS Source: In-house , various sources including USAID, UNCTAD, WORLD BANK studies

8 Key Initiatives and Support
1 April 2017 Key Initiatives and Support 8 Policy development, Investments and Regulation Allowing Banks to participate on Commodity Futures platform : Facility to hedge price-risk on commodity exchange platform will help banks to fund producers at lower margins ultimately providing higher liquidity at farmers’ level and across the value chain Code of Conduct for Collateral Management Service Providers : A realistic proposition considering the size or the investments made in these projects Infrastructure Development Support : In order to encourage larger entities / corporate participation, assistance should be provided to acquire or to give land on long-term lease from government System of MSP Procurement with NWR and WRF: Linking WDRA accredited facilities for MSP procurement Others: Development of network of facilities using WRF linked accounts, e.g. Input retailing National-level database of Warehouse / Storage receipts financed to enable tradability of the WR Incentivize lenders financing small & marginal farmers via WRF 8

9 National Bulk Handling Corporation Ltd. (NBHC)
INDIA’S LEADING INTEGRATED AGRI-COMMODITY & COLLATERAL MANAGEMENT COMPANY Facilitating complete operational and economic efficiencies in supply chain. Adding value to commodities. 1st and only Warehousing & Commodity Management Solutions Provider in India to obtain ISO 22000:2005 certification and category ‘F’ membership of Grain and Feed Trade Association (GAFTA) Sole agri-commodity futures Delivery Manager for India’s No.1 Commodity Futures Exchange Facilitated post-harvest credit, as never before NBHC – Quick Facts: Commodities Managed 16+ mn MT WRF Funding USD 4.5+ billion QA Labs 50 Banks 37 CCPM Licenses 25 Human Resources 3,500#+ Number of commodities 125+ # also includes contractual staff

10 THANK YOU 1010

Download ppt "Collateral Management"

Similar presentations

Ads by Google