Warehouse receipt
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Document stating the ownership of commodity
 Specified quantity, quality and grade
 Warehouse location , storage fee etc.
Can be sold or used to raise a loan
Used for delivery against a derivative instrument like futures
contract
Converts agricultural produce or other inventory to a tradable
warrant
Legal status of warehouse receipt
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Conventionally accepted as a ‘document of
title’
Transferability contingent on terms and
conditions of issuer or by law
Generally issued as transferable receipt
Not a bearer instrument
Need endorsement for transferring the rights
Notice of endorsement need to be submitted
to warehouse
Non-negotiable instrument
Issues in warehouse receipt structure
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Warehouse receipt not a negotiable instrument in
India
- Transfer of title is possible with endorsement
- But title not free from any outstanding claims
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Low credibility of the ‘warehouse' issuing the receipt
- No independent warehouse accreditation body
Lack of
- Performance guarantees and reliable insurance
cover
- Confidence in quantity and quality of underlying
commodity
Prerequisite for negotiability status
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Grading standards for commodities
Market’s confidence in the warehouse
operators
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Independent approval or accreditation
Insurance and performance guarantee
External supervision and monitoring
Confidence in quality and quantity of stock
Circulation of genuine receipts
Easy transferability of commodity ownership
- Electronic holding of commodity balances
Why banks do not lend against
commodities?
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Price risk -no mechanism for hedging
commodity price
Credit risk -inadequate structures to transfer
risk from borrower to commodity
Operational risk –poor state of warehouse
management process and control on
collateral
Inadequate and irregular MIS on stock
holdings
Concept of collateral management
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Collateral is an asset or a third-party
commitment accepted by the collateral taker
to secure an obligation of the collateral
provider.
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“Collateral” has the same meaning as “security”
Transaction intended to protect against
performance risk of counter party.
Collateral Management involves managing the
collateral on behalf of the collateral taker
Role of collateral manager
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Ensures adequate accredited warehousing
space
Ensures quality and quantity of warehoused
goods
Backs the same with guarantees and
insurance
Provides in-bound and outbound logistics
support
Advisory and Inventory Management services
Provides on-line and accurate reporting
National Collateral Management
Service Ltd. (NCMSL)
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The first national level Collateral Management company to be
set up in India
Institutional promoters:
- NCDEX
- Audit Control & Expertise (ACE)
- ICICI Bank
- Canara Bank
- Corporation Bank
- Punjab National Bank
Other interested institutions :
- Indian Farmers Fertilizer Co-operative Limited (IFFCO)
- HDFC Bank