With the worry on monsoon receding, the focus now has shifted to storing the commodities. Warehousing space is getting more sophisticated with investment from large private equity. Fairfax-owned National Collateral and Management Services Ltd is fast emerging as one-stop solution for all post-harvest needs. Right from grading, storing and financing, it is now focusing on procurement for the government. Sanjay Kaul, Managing Director, NCML, expects the warehouse receipt lending business to touch ₹25,000 crore this fiscal from ₹16,000 crore last year, boosted by a bumper pulses crop. Excerpts:

Will the good monsoon help warehousing companies?

Not exactly. It is not as if we need a bumper crop that could lead to a glut and bearish sentiments. It is not the best environment for warehouses. We need an environment where farmers can get a good price, while trade and industry also feel it is worthwhile to stock commodities for the entire season. Having said that, overall we believe it is going to be fairly good season. Generally, trade looks into stock-to-use ratio which maps the monthly available stock and demand. In many commodities, the stock:use ratio is very low because of last two bad seasons.

This opens up opportunities for companies like us. Specifically, in some commodities the opportunities appear to be very good.

After sharp fall in commodity prices last year, are banks willing to lend against warehouse receipts?

Banks are very bullish on lending against warehouse receipts. Most banks we work with feel that lending against warehouse receipts can grow from ₹35,000 crore to ₹1 lakh crore. Compared to pre-harvest credit of about ₹8 lakh crore, post-harvest credit through warehouse receipt lending is only ₹35,000 crore.

A crop loan kind of credit is unsecured and NPA (non-performing asset) could be as high as 22 per cent. However, a bulk of ₹35,000 crore warehouse receipt lending is not going to farmers.

Now banks want to involve more farmers. In this endeavour, we are using our own platform marketyard.com to on board all our clients, buyers and farmers to harness synergy.

Are there NPAs in warehouse lending?

NPAs in warehouse receipt lending happen when farmers are not able to meet the mark-to-market margin when prices fall. It happened with cotton and castorseed last year. When prices fall the collateral stored in warehouses loses its value. Most of the stocks stored were that of ginners who were caught unaware when cotton prices fell. There are no large wilful defaulters. Typically, banks fund only 70 per cent of the value of commodity. So, 30 per cent of price volatility is already built into the product.

What are your expansion plans?

We want to arrange finance while participating in the entire value chain. The country imports about ₹80,000 crore of edible oil annually. It comes in tankers at ports and needs interim storage facility. We have entered into MoU with Adani Ports for setting up liquid storage facility at Mundra. We are in touch with Pipavav and Essar ports. Our idea is to create infrastructure at ports for export and import trading commodities and provide trade finance which is secured by the stock. We are working with Rabobank which provides trade finance globally.

Is storage of pulses going to be an issue with prices falling on bumper crop?

Pulses prices will settle around minimum support price in two kharif crops — tur and moong. It could be different for urad which was affected by untimely rains. If the government does not support farmers on prices then they will shift to other crops next year. We have met the Secretary of Agriculture and told him that they should engage private sector agencies to procure pulses at MSP and store them.

The Centre has announced plans to create pulses buffer of two million tonnes. Instead of importing pulses from Mozambique to create buffer, they now have an opportunity to build the buffer at MSP from domestic produce. They should engage credible private sector agencies. In principle they have agreed but decision making takes time. If the decision is delayed beyond September-end, the crop would come in the market.

What are your plans in warehouse addition?

In our collateral management business, we managed 10,100 warehouses last year. Our own warehouses include 35 large warehouse complexes. We are likely to commission our first large silo complex of 38,000 tonnes at Purnia (Bihar) and another one is coming in Bareilly. We are trying to move away from conventional bag storage to silos in Sangli and Erode. We are expecting 100,000 tonnes to come by next year.

Our warehousing capacity is 4 lakh tonnes and this will touch 5.5 lakh tonnes by end of this fiscal. We are also setting up 53 testing laboratories, which include three high-end labs in JNPT near Mumbai, Visakhapatnam and Gurgaon. These sophisticated labs will approved by The Food Safety and Standards Authority of India.

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