Skip to main content

Commodities repositories to be launched next week

Commodities repositories to be launched next week
Finance and trading in negotiable warehouse receipts soon

Trading in negotiable warehouse receipts, a decade-old idea, will be a reality next week, when two repository recordkeeping agencies start operations.

The Warehousing Development and Regulatory Authority (WDRA) has licensed these two repositories. These will keep records of goods stored and moved from regulated warehouses, including warehouse receipt transfers, the same way share transfer records are kept by depositories.

One of the two has been established by the National Commodity and Derivatives Exchange (NCDEX), an agriculture-centric one. The other, CDSL, has been promoted by the BSE. They’re going online when launched next week in Delhi. “We have been working on repository and issue of electronic negotiable warehouse receipts (eNWR) with the respective regulators since long. The move will allow faster financing against such receipts and stocks can be tracked online,” said Samir Shah, managing director (MD) of NCDEX.

Named the National E-Repository, he said it would have 67 per cent NCDEX holding. The National Bank for Agriculture and Rural Development (Nabard) will have 13 per cent stake. State Bank of India and ICICI Bank, the largest government-owned and private one, respectively, would have a little below 10 per cent stake each.

Around  Rs 40,000 crore of financing is happening against collateralised stock. With the e-NWR, this market could expand multifold. At present, with defaults, financiers are finding it difficult to auction stocks and there is also the cost of collateral management fees. With e-NWR, banks may simply sell or transfer such receipts and recover their money.

So far, goods are financed against paper-based warehouse receipts, not fool-proof or fraud-proof. Electronic receipts which can be transferred like negotiable instruments open opportunities for hassle-free and faster trading in commodities. Especially for agricultural commodities, where losses in transit are huge as compared to non-agri ones.

Scaling up will take time, as the warehousing regulator has to ensure a surveillance and enforcement mechanism. By WDRA norms, responsibility for quality and delivery of stock is with the warehouse. However, when these are traded and delivered on an exchange, the latter must guarantee the settlement and compensate a buyer for losses, if any. However, the exchange will be able to then claim compensation by the warehouse.

NCDEX already has a four-tier surveillance mechanism, beginning with the warehousing service provider. Then, the exchange’s logistics team surveillance, the exchange’s surveillance team which reports directly to the MD and by an independent surveillance agency. Over and above, the Securities and Exchange Board of India does random checking of goods in warehouses to match with the record in the exchange concerned.

NCDEX’s monthly delivery on its platform is around 100,000 tonnes a month. It has begun providing RFID tags to all bags of highvalue commodities, such as spices and guar gum.

This allows it to make online checks of any movement of stocks in these commodities in the approved warehouse and against any e-NWR issued against these, against which banks give financing. The coverage is to be extended to all commodities. At present, nine banks and 11 non-bank finance companies are active in collateral financing for agri commodities.

The Business Standard , New Delhi, 19th september 2017

Comments

Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …