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The National Collateral Management Services (NCML) plans to launch a new online platform marketyard.com for auctioning warehouse receipts issued to farmers and traders against goods stored in its warehouse.
Typically, even if the commodity prices go up farmers — who have raised money by pledging the warehouse receipt to banks — are not allowed to sell their produce till they repay the loan.
Now, with farmers’ request and banks approval, NCML will auction the warehouse receipt on the platform and money realised will be deposited in an escrow account. It will be paid to the farmers after settling the bank loan and deducting the process charges.
Initially, three banks — SBI, HDFC Bank and ICICI — which have lent money against NCML warehouse receipt have shown interest to use the platform. NCML expects 29,000 clients who avail its services to participate in auction platform on the buy side.
Sanjay Kaul, Managing Director, NCML, said banks extending loan against warehouse receipts have suggested that they need a transparent platform to sell the goods in case of farmers loan default.
“Since default against warehouse receipt lending is miniscule, we thought such a platform should have enough business and participation to keep it going through the year. That’s when the idea of helping farmers to capture the price rise even with pledged goods germinated,” he said.
NCML, which is owned by Fairfax India, expects to launch the platform by next kharif season. To start with, the service will be offered for free to sellers and buyers will be charged 0.2 per cent on the value of the deal.
Since the deal takes 4-5 days to complete, NCML will collect 3-5 per cent of the commodity value as margin from buyers to cover the commodity price risk, said Kaul who refused to compare the platform with spot or futures exchange as it is not facilitating trading in any specific contract.
To cover its risk, banks offer only 70 per cent of the value of commodity as loan against warehouse receipt.
NCML has handled 8.1 million tonne of commodity and issued warehouse receipts worth ₹23,497 crore during last financial year. It had asset under management of ₹16,275 crore as of March this year. Overall, banks lending against warehouse receipt is estimated at ₹35,000 crore.
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