This slide will teach you about the collateral management and warehouse receipt.

1. WAREHOUSING AND
COLLATERAL MANAGEMENT
Dr. A. K. Asthana
Director
Institute of Cooperative Management,
Bhopal, India
dearasthana@gmail.com
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2. • Production of most of agriculture goods
is seasonal though their consumption is
through out the year.
• This phenomenon lead to necessity of
warehouse and warehousing
• for physical storage of goods from time
of production to time of final
consumption.
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3. • Certain development in India
• WTO, Food Security Act 2013, 100% FDI
in retail sector and passage of WDRA Act
2007, emphasis of bank loan to
agriculture sector under priority sector
scheme give importance to warehouse
and warehousing.
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4. Warehouse
• Warehouse is a physical location to
receive the produce from point of
production in bulk with facility to break
down bulk material, reassemble into
combination according to particular
order and transport to the point of final
consumption center.
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5. • Warehouse is scientifically designed
structure to protect the quality and
quantity of goods stored.
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6. Warehousing
• Warehousing is defined as combination
of multiple functions that involves
responsibility of safeguarding the quality
and quantity of goods stored.
• Warehousing involves the technique like
use of chemicals, fumigation, sunlight
and aeration to protect the goods from
damage
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7. • . involves technical aspect related
designing safe and sound structure.
• It also involves record keeping of goods
while receiving inside warehouse and at
time of delivery from the warehouse.
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8. Function of Warehouse
• Receive the produce/material
• Store them properly ( stacking, space
between two stack, height of stack, use
of plate in the ground)
• Protect the goods from damage,
pilferage and deterioration in quality
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9. •
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Mixing and repacking the material
Delivery of goods to right place
Arranging transportation
Keep of record of receipt and despatch
Arranging finance ( pledge
finance/Finance on NWR)
• Price stabilization and market intelligence
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10. Classification of Warehouse
a. General warehouse for storage of any
type of goods
b. Special Commodity for storage of
speical goods like wool cotton spices,
petroleum product
c. Cold storage: for fruit and vegetable at
specific temperature
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11. On the basis of Ownership
a. Private warehouse: owned byprivate
person, exporters, big business houses, for
keeping own goods , rental basis also, 18
million tones capacity
b. Public warehouse: Owned by govt or public
sector like Food Corporation of India ( capaicty
32 million tones), Central Warehouse
Corporation ( capacity 10 million tones
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12. c. Cooperative warehouse: Owned by state
cooperative marketing federation and primary
cooperative marketing societes ( capacity 15
million tones)
• Bonded warehouse: Owned by Custom house
, located nea sea port or air port, goods
stored till custom clearance
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13. Warehouse Receipt
• a document to state the ownership
of the goods
• warrant issued by warehouse to a
person who deposits his goods
• document of title of goods as per the
Sale of Goods Act, 1930.
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14. Element of Warehouse receipt
• Warehouse receipt Serial number
• Name of warehouse and its location
license number
• Date of issue of receipt and duration of
storage
• Name of commodity, its quantity, quality
and grading And standarization
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15. •
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Private mark of depositor on goods
Rate of storage and Other charges
Approximate value of goods stored.
Insurance Details
Whether warehouse receipt is negotiable
or non-negotiable
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16. • Shelf life of goods
• Signature of warehouseman or his
authorised agent
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17. Type of Warehouse receipts
• Non-negotiable warehouse receipt
• Negotiable warehouse receipt
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18. • Non-negotiability of warehouse receipt
• means warehouse receipt cannot be
transfer from one person to another
person by endorsement
• can not be transferred between member
of commodity trade
• depositor of goods is entitled to take
delivery of the goods.
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19. • arrangement was not conducive for
development of agri-business and future
trading of commodity.
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20. • Negotiable warehouse receipt
• initiative for making warehouse receipt
negotiable came when Govt introduced
Warehousing development and
Regulation bill 2005
• Warehousing development and
regulation Act was passed in 2007
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21. • goods covered by a negotiable warehouses
receipt can be transferred by an endorsement
• person to whom warehouse receipt is
endorsed acquires a title to the goods
• 115 agriculture commodity and 26
horticulture commodity has been notified for
issuance of negotiable warehouse receipt.
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22. • Warehouse registered with Warehousing
Development and Regulation Authority can
issue NWR
• At end of March 2013, 332 warehouses can
issue negotiable warehouse receipt.
Warehouse receipt is secured document. It is
printed in the security press of Govt of India.
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23. • Warehouse receipt reflect the value of
commodity deposited at market rate
• This make warehouse receipt a tradable
warrant or instrument.
• So it can be used to raise loan from the
bank.
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24. • Different banks have different guideline for
providing loan against warehouse receipt.
• Amount of loan depends on the nature of
commodity, its market price and minimum
support price. Interest charge also depends on
the norms of particular bank for particular
commodity.
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25. Financing System on Warehouse
• Two type of financing system in the
bank:
• Hypothecation/Pledge of Goods
• Warehouse Receipt System:
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26. • Hypothecation/Pledge of Goods
• system is prevalent for small and private
warehouse where the entire warehouse is
occupied with commodity belonging to single
entity.
• commodity of warehouse is
pledged/hypothecated as security for taking
loan. Once load repaid , owner take possesion
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27. • Storage Receipt
• closely associated with pledge financing.
• method of finance for private godown or
private license warehouse.
• receipts are issued by collateral manager
of an agency known to the bank
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28. • bank give load to depositor only if the
collateral manager approves the stock
through the storage receipt.
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29. Warehouse Receipt System:
• warehouse man of licensed warehouse
or accredited warehouse issue
warehouse receipt.
• warehouse receipt become the basis for
giving loan by the banks
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30. • Depositor endorsed this warehouse receipt in
favour of bank and take loan against the
commodity.
• Once bank received loan from the buyer,
commodity can be released.
•
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31. Collateral Management and Its Functions
• In banking parlance, collateral means
security.
• In case of warehouse based financing,
collateral is commodity stored in the
warehouse.
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32. • Collateral is the only security which provide
protection against the financing done by the
financial institution in case warehouse
finance.
• So apart from maintaining the quantity and
quality of collateral, collateral management
also involves mitigation of risk associated with
price fluctuation of commodity.
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33. • collateral management deals with the following
1 Storage and preservation of commodity
Scientific storage and preservation is first step
towards maintaining the quality and quantity of
collateral.
2 Testing and Certification
Timely testing of collateral helps to identify the
quality related problems and mitigating them
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34. 3 Market Intelligence for Price Risk Management
• Collateral in the warehouse is subjected to
market risk due to price fluctuation
• needed to develop a model for price
prediction.
• model includes input of spot market price,
future market price, arrival of commodity in
market and market trends.
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35. 4 Price Risk Hedging
Price risk associated with collateral due to price
fluctuation is minimized by participating in future
market.
using suitable derivatives like hedging.
5 Developing Market Linkage
Fixing buying and selling arrangement between
buyers and sellers is also useful technique to
protect the collateral from sudden price fall.
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36. 6 Insurance
7 Stock documentation and Information
Repository
Collateral management also insure efficient
and risk free physical delivery of the commodity
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37. • Now warehouses are linked with
commodity exchanges like NMCE,
NCDEX, MCX, ICEX etc.
• Specialised collateral management
agency like National Bulk Handling
Corporation Ltd. (NHBC) and National
Collateral Management Service
Limited(NCMSL) provide these services.
•
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38. Dematerialisation of Warehouse receipt and Linkage
with Future Trading
Physical form of warehouse receipt has
following disadvantage
1. Chances of theft and mutilation
2. Chances of forgery
3. Difficulty in splitting the quantity mentioned
in WR
If depositor wants to disposed off part of
commodity then he had difficulty.
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39. 4 . Difficult in transferring if the transferor and
transferee are two different location
Future contracts are settled in exchange either in
cash or in physical delivery
In case future contract is settled in physical delivery,
then clearing house will receive warehouse receipt
from the seller and will handover to the buyer after
settlement of payment
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40. • In case of national level commodity exchange
buyer and seller operates from different
geographical location so warehouse receipt
need to be delivered from one geographical
location to another geographical location
causing cost and inefficiency in the system.
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41. • When warehouse was linked with commodity
exchange, then delivery of commodity with
efficiency became important.
• Concept of dematerialisation of warehouse
receipt was developed to support settlement
of trade on exchange and efficient physical
delivery of commodity.
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42. • For this purpose the warehouse receipt
was converted into electronic form and
kept in depository. NSDL and CDSL two
depository participants
• The same is transacted online without
signature. This overcomes the limitation
of physical warehouse receipt.
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43. • Now in India future market of commodity
specially agriculture commodity is well
established.
• During 2011 – 12 volume of future
trading of agriculture commodity was
around 5000 lakh tones and value was
Rs 22 lakh crore.
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44. • Multi Commodity Exchange (MCX), National
Commodity and Derivatives Exchange Ltd
(NCDEX), National Multi Commodity
Exchange(NMCE), and Indian Commodity
Exchange(ICEX) are some of the national level
commodity exchanges who deals in
commodities future including agriculture
commodity future.
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45. • For example, NSDL has agreement with NCDEX
and MCX for transaction of dematerialized
warehouse receipt. Dematerialised
warehouse receipt give impetus to linkage
between warehouse and future trading of
agriculture commodity
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46. Dematerialised warehouse receipt has
following advantage
1. Ease of settlement of trade
2. With good network of warehouses delivery
can be made anywhere. This will encourage
hedger to participate in the future market.
3. Better integration of spot market and future
market increasing market efficiency
4. Better information on crop fundamental like
stock position helps in stabilising market in
volatility
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47. Use of this Info for Extension Professional
• Extension professional need to impress upon
farmers that only good production of
agriculture commodity will not fetch them
better price.
• Bumper harvesting creates another problem
of warehousing, transportation and market
linkage
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48. • So farmers need to tackle post harvest
problem like warehousing , future market,
pledge finance, avoid distress sell, grading and
standardisation of agriculture commodity.
• Extension professional should guide the
farmers
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49. • There two type of market for their product,
spot market and future market.
• Not to sell in distress but take advantage of
warehouses to store their goods till they find
suitable price
• What are the private, government and
cooperative warehouse near their production
centre
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50. • How to take benefit of negotiable warehouse
receipt
• How to take finance on NWR
• How to settle their sale when NWR is
hypothecated in bank
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