warehouse receipt

Warehouse receipt
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
Converts agricultural produce or other inventory to a tradable
Legal status of warehouse receipt
Conventionally accepted as a ‘document of
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
Warehouse receipt not a negotiable instrument in
- Transfer of title is possible with endorsement
- But title not free from any outstanding claims
Low credibility of the ‘warehouse' issuing the receipt
- No independent warehouse accreditation body
Lack of
- Performance guarantees and reliable insurance
- Confidence in quantity and quality of underlying
Prerequisite for negotiability status
Grading standards for commodities
Market’s confidence in the warehouse
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
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
Inadequate and irregular MIS on stock
Concept of collateral management
Collateral is an asset or a third-party
commitment accepted by the collateral taker
to secure an obligation of the collateral
“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
Ensures adequate accredited warehousing
Ensures quality and quantity of warehoused
Backs the same with guarantees and
Provides in-bound and outbound logistics
Advisory and Inventory Management services
Provides on-line and accurate reporting
National Collateral Management
Service Ltd. (NCMSL)
The first national level Collateral Management company to be
set up in India
Institutional promoters:
- 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