Lending against warehouse receipts soars

Even as the government is toying with the idea of making warehouse receipts a negotiable instrument, India's largest commodity exchange, National Commodity and Derivatives Exchange (NCDEX), has gone ahead and proved how helpful this move would be for the farmers to raise short-term loans from banks.

Lending against NCDEX warehouse receipts has gone up 100 per cent in the last one year by Rs 5,000 crore to Rs 10,000 crore in 2005-06. And what's more, banks are lending against warehouse receipts at an attractive rate of 8-10 per cent.

''The banks are more than willing to lend against our warehouse receipts as there is very little risk involved as the goods in our godowns are mortgaged against the loans. In fact, there has been no default ever since this process evolved,'' says Ravi Kumar, managing director, NCDEX.

The news has come as music to the ears particularly at a time when farmer suicide cases are reported on a regular basis in Maharashtra. ''When the Parliament clears the Warehouse Bill, it will only add that extra comfort to the banks to seize the goods on default by the farmers,'' said Kumar.

There are goods worth Rs 500-1,000 crore at the National Commodity and Derivatives Exchange godowns at any given point of time with over 50,000 mt tonnes of physical delivery happening every month.

Welcoming the regulator's recent measures instructing exchanges to adhere to open interest limits strictly, Kumar said, ''Curbing open interest will only increase volatility. The market has turned choppy in the last 7-8 months after open interest curbs were imposed. However, we monitor limits of both our clients and members on a real time basis,'' he said.

The volume of business has also come down in commodities where the open interest was reduced drastically. ''We have explained our concerns to the regulator and it is now for them to take a call,'' he said. NCDEX chief also feels that increasing margins on a regular basis will burden the small and medium players leaving the market in the hands of big investors.

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